Intel: Collaboration with Nvidia Is a Welcome Positive

Key Morningstar Metrics for Intel

• Fair Value Estimate: $28.00
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Very High

Intel INTC and Nvidia NVDA announced a collaboration to jointly develop multiple generations of custom data center and PC products. Nvidia will also invest $5 billion in Intel’s common stock at a price of $23.28 per share.

Why it matters: This is another win for Intel as it raises funds for its manufacturing business, Intel Foundry. Yet the deal doesn’t alter our Intel thesis, as Nvidia has not committed to shifting massive portions of its chip production to Intel Foundry and away from TSMC.

• While the cash infusion will support Foundry, the collaboration should help to solidify Intel’s Products business. A cozier partnership in x86 CPUs in the data center, and integrating Nvidia RTX GPU chiplets into PC CPUs, may help Intel slow its recent market share losses to Advanced Micro Devices AMD in CPUs.

The bottom line: We raise our fair value estimate for no-moat Intel to $28 per share from $21, as we are more optimistic about long-term support for Intel’s Products segment. We retain our Very High Uncertainty Rating. The 20%-plus rally in shares appears slightly overdone to us.

• We continue to view the bull case for Intel as one in which it solidifies its Products business while receiving outside support to ensure a healthy Foundry business. We view the deal as progress on both fronts, but not a seismic shift, and there is more work to be done on all fronts.

Big picture: In our view, the game-changer for Intel would be if Nvidia were to shift a hefty portion of its GPU production to Intel 14A in the future. We don’t expect this to happen, given Nvidia’s long relationship with Taiwan Semiconductor Manufacturing TSM and the latter’s plans to expand manufacturing in the United States.

• That said, a cozier relationship between Intel and Nvidia brings optimism that Nvidia might explore Intel Foundry as a minority, if not substantial, manufacturing partner someday, perhaps in GPUs or future PC CPUs, which Nvidia is rumored to be developing.