What Should Investors Make of the Nvidia-Intel Agreement? Insight from Analysts

ARM and AMD Stocks Under Pressure After Nvidia and Intel Deal

Shares in ARM and Advanced Micro Devices (AMD) have faced pressure recently following a significant announcement of a $5 billion investment by Nvidia in Intel, stirring worries about increased competition.

This investment could signal tougher competition ahead for ARM and AMD, a concern that hasn’t gone unnoticed by investors.

Nonetheless, certain analysts from Wall Street suggest that the actual impact on ARM and AMD may be less severe than what the market’s response would imply.

For instance, analysts at Bank of America and Bernstein indicated that if the new contract fosters additional business for Intel’s foundry, it might actually benefit companies involved in chip-making equipment sales.

After Nvidia’s initial announcement, some investors reacted quickly, fearing that this would lead to stiff competition for ARM and AMD. Although those worries have somewhat eased, there’s still uncertainty surrounding the future implications of this deal.

Following the announcement, Nvidia’s stock dropped about 7%, while AMD experienced a nearly 6% decline before attempting to recover. However, some analysts noted that the effects might not be as significant as the early market responses suggested.

Bank of America analysts mentioned that they expect “limited short-term impacts” on AMD and ARM from this partnership. They maintained their “buy” ratings for both companies, pointing out potential advantages for businesses involved in equipment and software for chip design.

Interestingly, Bernstein’s analysts believe the influence on AMD may turn out to be “less significant than initially feared.” Yet, a lingering question for investors remains: Does the Intel-Nvidia collaboration pave the way for more business in Intel’s foundry to create chips for other companies? The deal unveiled didn’t include any specific commitments towards foundry services.

Furthermore, Bernstein noted that Nvidia’s actions might reflect preferred relations with existing manufacturing partners, like TSMC. This seems to be more of an effort to cultivate goodwill with the U.S. government, particularly as Nvidia holds a 10% stake in Intel without making a deeper commitment.

“Both companies have been careful about praising TSMC, likely to avoid upsetting key suppliers,” remarked analysts at Bernstein.