NVDA announced overnight that it’s buying an ~5% stake in INTC for $5 billion. The two companies will also collaborate on chip and system design. As I’m writing this, INTC shares are up by 20%+ in trading this morning, with NVDA ahead by 1%+.
Hard to figure what’s going on. My thoughts, for what they’re worth:
–this appears to be a real infusion of cash, as opposed to Washington’s recent acquisition of securities that I see as most resembling preferred shares as compensation for money previously given or lent by the central government to INTC. This eliminates any issue of near-term potential repayment, as well as moving Washington lower down on the list of payees in a liquidation (not that that’s likely, I think). I haven’t looked at the documents from the original inflows from Washington, so I have no idea whether this was an important element of the government money restructuring or not. Still, it’s there.
–the move unites NVDA’s brains with INTC’s plant and equipment. Ultimately, this is likely to make NVDA less reliant on TSMC for chip fabrication. It means also having access to fabs whose structure NVDA can influence and which are located outside Taiwan
–the investment amounts to three weeks of NVDA operating income, so why not
–NVDA shifts from being a priority for TSMC to being the priority for INTC, suggesting to me that NVDA will be able to shape INTC fabs to some degree to meet its specific needs. Maybe more uniqueness for its chips and maybe more favorable treatment from Washington, for helping to bail out a former and potential national champion.
I own a bunch of NVDA (thanks to my son Brendan) and AVGO. I followed INTC as an analyst during its glory days of the 1980s. I’ve owned the stock off and on as a private investor since. I don’t feel any urge either to buy INTC today or to do anything with the others, though.
I’ve also watched from the sidelines as management’s serial bungling reduced INTC over the years to a shadow of its 1980s self (the first bad signal I can remember is INTC declining to make chips for AAPL, a long time ago). Anyway, I’m happy to miss the potential bottom in return for getting more evidence for how the NVDA partnership will go.