NVIDIA’s $5 Billion Investment: Is Intel Foundry’s Spinoff Approaching a Key Milestone?

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Nvidia announced yesterday that it will invest $5 billion in Intel for the development of AI infrastructure and PC products. Analysts see this move as a key signal that Intel’s foundry business has secured vital customer support.

According to Zhuifeng Trading Desk, citing a UBS research report released on the 18th, this investment could promote the separation of Intel’s product business from its foundry business, and raise the company's valuation to the $35-40 per share range.

UBS analysts noted that this investment is similar to previous expectations of customer investment following the Trump administration’s conversion of the CHIPS Act commitment into equity investment. The bank had previously predicted that key customers such as Nvidia and Broadcom were highly interested in Intel’s manufacturing roadmap and might make equity investments—now this prediction has been confirmed.

Analysts believe that, in the long term, if such investments accelerate the separation of Intel’s product and foundry businesses, it could pose a challenge to competitor AMD within a 3-4 year timeframe, since this will allow Intel’s product business more flexibility to choose foundry partners. UBS has raised its price target for Intel from $25 to $35, believing the market will start to value each business segment of this chip giant independently. At press time, Intel’s U.S. shares were up 0.13% pre-market to $30 per share, representing a 16% upside to the target price.

Foundry business receives client endorsement; spin-off expectations rise

UBS analyst Timothy Arcuri stated that Nvidia’s $5 billion investment is of great significance to Intel’s foundry business. The report pointed out that Nvidia and Broadcom have previously been deeply engaged with Intel regarding its manufacturing roadmap, initially focusing on the 18A process, but have recently shifted to the 14A process expected for mass production in 2029.

This investment is seen as an important milestone in validating Intel as a critical supplier. Analysts expect that after Nvidia’s investment, other clients may also follow and invest in Intel. This will enable Intel to continue investing in the development of the 14A process, which, based on supply chain research, is expected to be quite competitive.

More importantly, this development may lay the groundwork for separating Intel’s product and foundry businesses. UBS had previously discussed the potential for such a separation, believing it would grant Intel's product business flexibility to use TSMC for foundry services.

Supply chain ripple effects

Although the investment concerns development of AI infrastructure and PC products, analysts believe the impact at the product level is relatively limited. Nvidia is currently focused on its Grace CPU roadmap, and this investment may increase the chances of Nvidia offering an x86 CPU version in its Rubin Ultra racks.

However, analysts emphasize that the positive effect on Intel’s product business is "relatively mild," and that the greater significance of the investment still lies at the foundry level. It is expected to benefit semiconductor equipment manufacturers. UBS believes the investment increases the likelihood of Intel successfully establishing a viable foundry, thus improving its long-term capital expenditure outlook and benefitting upstream equipment suppliers. Since the investment mainly targets foundry services, it is not expected to significantly improve the competitiveness of Intel’s product roadmap.

In the long run, if such investments accelerate the split between Intel’s product and foundry businesses, it could pose a challenge to competitor AMD within three to four years. In the short term, since the investment is mainly focused on Intel’s foundry side rather than its product roadmap, direct impact on AMD is limited. But from a three- to four-year perspective, if such investments accelerate Intel’s separation of product and foundry businesses and enable the independent Intel product division to freely use TSMC capacity, it may have negative effects on AMD.

Based on the positive changes brought by Nvidia’s investment, UBS raised its target price for Intel from $25 to $35, using the sum-of-the-parts (SOTP) valuation method. Intel’s product business, based on a peer 15x P/E ratio, is valued at $27 per share; Intel’s foundry business, after excluding non-controlling interests, is valued at $8 per share. Adding in Altera, Mobileye, and other businesses, the final potential equity value is $35 per share.

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The above content is from Zhuifeng Trading Desk.

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