<div id="readability-page-1">There's an old saying: If you can't beat them, join them. That's exactly what Intel (INTC -1.53%) appears to have done in its latest deal with Nvidia (NVDA 0.50%). For years, Intel has struggled to remain relevant in an industry dominated by artificial intelligence. But Intel's latest deal could make it the next big AI stock. Understanding the details of the partnership will be critical for shareholders in Intel and Nvidia alike. <div><img src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vZWRpdG9yaWFsL2ltYWdlcy84MzY1NjkvbnZpZGlhLWhlYWRxdWFydGVycy13aXRoLW52aWRpYS1zaWduLWluLWZyb250LTEucG5nJnc9NzAw?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="700" height="420" original-src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vZWRpdG9yaWFsL2ltYWdlcy84MzY1NjkvbnZpZGlhLWhlYWRxdWFydGVycy13aXRoLW52aWRpYS1zaWduLWluLWZyb250LTEucG5nJnc9NzAw"/>Image source: Getty Images. </div> <h2>Two things to understand about Intel's deal with Nvidia</h2> Last month, Nvidia agreed to invest $5 billion in Intel. This gave it a roughly 4% stake in the company. This investment followed the U.S. government taking a 9.9% stake in Intel earlier this year. The deal between the two tech companies was surprising for several reasons. First, Nvidia and Intel compete directly in many areas of the chip landscape. Both make high-performance GPUs that serve a variety of end markets, from gaming to AI. Companies don't typically invest in their rivals. This brings us to the second reason the deal was surprising: Nvidia has been crushing Intel in recent years, amassing larger market shares in almost every growth category. In the market for add-in-board GPUs, for instance, Nvidia controls more than 90% of the market, while Intel's share is less than 1%. Why would Nvidia invest in a struggling competitor? There are two things to understand. The first is that this deal gives Nvidia the ability to source critical components in the U.S. Intel's foundries are largely based in the U.S. Nvidia, meanwhile, primarily relies on Taiwan Semiconductor Manufacturing Company for production, which adds significant geopolitical risk to its supply chain. This deal allows Nvidia to diversify its sources for certain components. Meanwhile, Intel gains a large customer for its foundry infrastructure. The second rationale behind this deal is the pairing of Nvidia's market-leading GPUs with Intel's leading CPUs. While demand for GPUs has surged dramatically due to their usefulness in powering and training AI software, CPUs remain essential components for data centers too. Improved integration between Intel's CPUs and Nvidia's GPUs should result in greater performance improvements and reduced energy demand. <h2>Can Intel become the next big AI stock?</h2> Collaborating with Nvidia gives Intel a much better chance to benefit from the AI revolution. AI spending is expected to increase at an annualized rate of 30% or more for years to come. So far, Nvidia has benefited tremendously thanks to its development of top-of-the-line AI-focused GPUs, as well as its CUDA software platform, which helps its customers get the most out of their chips. Now, Intel has essentially attached its fate to the industry leader, which could be a highly beneficial position. Intel's deal with Nvidia also provides Intel with an opportunity to earn some much-needed validation for its current operating strategy. According to reporting from The New York Times, &#34;analysts say most chip companies want to see whether Intel can succeed in making its own computer chips before asking it to produce their chips for smartphones, artificial intelligence systems and other technologies.&#34; The Nvidia deal gives it a blue chip customer with massive demand needs, which could be exactly what Intel needs to help it attract more foundry clients. The bigger cause for excitement, however, is Intel's newfound ability to tie its CPUs more tightly into AI data centers. As mentioned, Nvidia holds a 90% market share or more in most GPU categories related to AI. Intel's CPUs, meanwhile, are also used in a majority of servers today. Coupling the two components together from the start will simplify ordering and assembly for customers, unlock potential efficiency gains in terms of design and software integrations, and also ensure that Intel's products remain relevant for AI technologies. In total, this deal is massive news for Intel investors. The company's foundry model got a huge validation bump. Meanwhile, its position in the AI industry -- while still relatively weak -- is improving. Intel won't be overtaking Nvidia anytime soon. But the deal between them at least gives Intel some ability to benefit from its competitor's success. </div>

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Intel has struck a significant deal with Nvidia, where Nvidia invests $5 billion for a 4% stake in Intel. This partnership is crucial as it allows Nvidia to diversify its supply chain and gives Intel a major customer for its foundry services. The collaboration aims to integrate Nvidia's GPUs with Intel's CPUs, enhancing performance in AI data centers. This deal is seen as a validation of Intel's strategy and could position it better in the growing AI market, despite its current challenges against Nvidia's dominance.

- Intel has entered a surprising partnership with Nvidia, where Nvidia invested $5 billion for a 4% stake in Intel, despite being direct competitors in the chip market.  
- This collaboration allows Nvidia to diversify its supply chain by sourcing components from Intel's U.S.-based foundries, while Intel gains a significant customer for its foundry services.  
- The deal positions Intel to better integrate its CPUs with Nvidia's leading GPUs, potentially enhancing performance in AI data centers and improving Intel's relevance in the growing AI market.

Why the Nvidia Deal Is Massive News for Intel Shareholders