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Nvidia, the world’s top semiconductor producer, has announced intentions to invest $5bn in Intel and work together with the challenged chip company on upcoming offerings.

Strategic Partnership Follows Government Backing

30 days after the U.S. government confirmed it had acquired a 10% stake in Intel, Nvidia declared it would team up with the company to develop specialized data centers that make up the foundation of AI systems, as well as PC hardware.

Shares in Intel jumped 29% during pre-market trading in New York. Nvidia rose almost 3%, adding to its $4 trillion valuation.

Funding Terms and Legal Approvals

Nvidia confirmed it will spend $5bn to acquire Intel shares at $23.28. The deal is subject to government clearance.

“This historic collaboration integrates NVIDIA’s AI and accelerated technology with Intel’s CPUs and the broad x86 ecosystem – a fusion of two top-tier systems,” NVIDIA’s chief executive Jensen Huang stated. “Together, we will expand our networks and set the groundwork for the future of computing.”

The two companies said they will work on “seamlessly connecting” their architectures.

Emphasis on Data Centers and Computer Components

Regarding data centers, Intel will produce custom chips that Nvidia will use in its AI hardware platforms. For computer hardware, Intel will build chips that incorporate Nvidia tech.

Lifeline for Challenged Intel

The deal offers a lifeline for Intel, which was a Silicon Valley pioneer that experienced decades of growth as its processors powered the personal computer revolution, but fell into a slump after failing to capitalize on the shift to the mobile computing era unleashed by the Apple iPhone 2007 launch.

Intel fell even farther behind in the past few years amid the AI surge that’s propelled Nvidia into the global most valuable company. Intel reported losses of nearly $19bn last year and an additional $3.7bn in the first six months of this year, and plans to slash its workforce by a 25% by the end of 2025.

Nvidia’s Rise in the Artificial Intelligence Era

Nvidia, meanwhile, has risen dramatically because its specialized chips are underpinning the AI boom. The chips, called graphics processing units, are highly effective at building advanced AI systems.

“With AI infrastructure investments expanding rapidly with the industry expecting between $3tn to $4 trillion in total AI infrastructure spend by the end of the decade, the chip landscape remains [Nvidia’s] domain, with all others paying rent,” commented a industry expert. “More governments and businesses wait in line for the most advanced chips in the world.”