Is NVIDIA's $5B Stake a Signal to Buy, Hold, or Sell Intel Stock?

It’s been almost two decades since Intel Corporation INTC rejected acquiring NVIDIA Corporation NVDA for $20 billion. But now the role has reversed, with NVIDIA investing in Intel. Will this bet lead to a turnaround for Intel, making it a buy now? Let’s explore –  

Why Intel Just Had Its Best Day in Nearly 38 Years 

At the start of the year, Intel’s shares fell to their lowest level in over a decade. However, Intel’s shares have begun to recover, with INTC stock posting its strongest day since October 1987 on Thursday. Shares jumped 22.8%, bringing year-to-date gains to 52%, surpassing the Semiconductor - General industry’s 24.9% increase. 

NVIDIA’s willingness to invest $5 billion in Intel common stock boosted the share price. As part of the deal, NVIDIA will acquire Intel shares at $23.28 each, reflecting a 6.5% discount to INTC’s closing price on Wednesday. Intel’s strategic alliance with NVIDIA could help the struggling chipmaker regain its former glory and become the undisputed tech leader it once was in Silicon Valley. 

What’s Behind NVIDIA’s $5B Stake in Intel? 

NVIDIA and Intel plan to develop several generations of custom products for data centers and personal computers (PCs) that will accelerate workloads and applications across hyperscale and consumer sectors. For data centers, NVIDIA will integrate Intel’s custom x86 chips into its artificial intelligence (AI) platforms. NVIDIA’s CEO Jensen Huang said that “this historic collaboration tightly couples NVIDIA’s AI and accelerated computing stack with Intel’s CPUs and the vast x86 ecosystem,” citing nvidianews.nvidia.com. 

In the PC market, NVIDIA’s RTX GPU chiplets will be combined with Intel’s x86 system-on-chips (SOCs). These new x86 RTX SOCs will power various PCs that demand seamless integration of industry-leading central processing units (CPUs) and graphics processing units (GPUs). Intel CEO Lip-Bu Tan added that “Intel’s x86 architecture has been foundational to modern computing for decades - and we are innovating across our portfolio to enable the workloads of the future,” citing the newsroom.intel.com. 

What Does NVIDIA’s $5B Investment Mean for Intel? 

Intel’s foundry business has been struggling for a while and is in urgent need of funding. Now, NVIDIA’s investment has become a vital lifeline helping Intel scale up its cutting-edge process nodes. Intel is launching its new 18A process at its manufacturing plants, supporting at least three client generations. The company is also seeking a major client for its 14A node. 

Despite a couple of acquisitions, Intel has lagged behind the AI revolution and lost ground to NVIDIA’s dominance. Therefore, partnering with NVIDIA has not only reclaimed Intel’s relevance in the AI-driven tech industry but also provided a much-needed boost to its manufacturing ambitions. 

Here Is How to Trade Intel Stock Now 

NVIDIA’s $5 billion investment in Intel has revived hopes of a turnaround. Financial support from the Trump administration and SoftBank Group Corp.’s SFTBY $2 billion investment with Intel are some of the other positives. All these developments should encourage investors to stay committed to Intel stock for future gains. 

However, new investors should remain cautious. Intel’s financials show little improvement, with revenue growth in the second quarter remaining flat and gross margins under pressure due to increased capital expenditures. 

The effectiveness of Tan’s cost-cutting measures is not yet clear, and Intel remains an overvalued stock. This suggests Intel’s share price could fall sharply if there is a significant correction in the broader market. Based on the price-to-earnings (P/E) ratio, Intel trades at 210.83 times forward earnings compared to the industry’s forward earnings multiple of 42.91.  

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For now, Intel stock has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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