Nvidia announced on Thursday that it will invest $5 billion in Intel, becoming one of the chipmaker's largest shareholders with an ownership stake of approximately 4 percent. This investment comes shortly after the U.S. government acquired a significant stake in Intel, marking a pivotal moment for the struggling company. Intel's shares surged by 30 percent in pre-market trading following the news.

The partnership aims to revitalize Intel, which has faced challenges in recent years despite efforts to turn around its operations. The company appointed a new CEO, Lip-Bu Tan, in March, who has faced scrutiny from U.S. officials, including former President Trump, over his ties to China. This scrutiny led to a meeting in Washington, resulting in the U.S. government acquiring a 10 percent stake in Intel.

Nvidia's investment will not include a manufacturing deal, which is crucial for Intel's foundry business. Analysts suggest that for Intel's foundry to thrive, it will need to secure large customers like Nvidia, Apple, Qualcomm, or Broadcom. Nvidia plans to purchase Intel common stock at $23.28 per share, slightly below Intel's closing price of $24.90 on Wednesday, but higher than the $20.47 per share the U.S. government paid for its stake.

Chris Beauchamp, chief market analyst at IG Group, noted, "It’s a reflection of Nvidia looking to diversify its investment within the U.S. and gain favor with the U.S. government. It doesn’t change the bigger problem Nvidia faces with China, but it keeps it in favor with the U.S. government."

The agreement includes plans for Intel and Nvidia to collaborate on developing PC and data center chips. Intel will design custom data center processors that Nvidia will pair with its AI chips, known as GPUs. A proprietary Nvidia technology will enable faster communication between the two companies' chips, which is essential in the AI market where multiple chips often work together to process large data sets.

Currently, Nvidia's top-selling AI servers utilize its own chips, but this partnership will allow Intel to compete more effectively, potentially generating revenue from each Nvidia server sold. The collaboration poses a competitive threat to AMD, which is also developing AI servers, and Broadcom, which provides chip-to-chip connection technology.

Nvidia CEO Jensen Huang stated, "This historic collaboration tightly couples Nvidia’s AI and accelerated computing stack with Intel’s CPUs and the vast x86 ecosystem—a fusion of two world-class platforms. Together, we will expand our ecosystems and lay the foundation for the next era of computing."

The financial specifics of the collaboration were not disclosed, but both companies indicated they would work on multiple generations of products. They emphasized that the partnership is a commercial arrangement without any licensing components.

Despite the positive outlook, Nvidia has faced challenges in selling its H20 chips in China amid regulatory pressures from both Washington and Beijing. In August, a deal allowed Nvidia to sell H20 chips to China in exchange for a 15 percent cut of sales, but the company has not yet shipped any chips to the country. Meanwhile, China has reportedly banned its companies from purchasing or testing Nvidia's AI chips as it seeks to bolster its domestic chip industry.