Nvidia announced a $5 billion purchase of Intel stock, but it’s not the game-changer that the headlines are making it out to be.
While Intel is America’s biggest chipmaker, it lags behind TSMC’s cutting-edge nodes. Nvidia is just a design firm, so they don’t possess the necessary manufacturing know-how to improve Intel’s capabilities. So, Intel’s need for the right ecosystem and advanced lithography to create the upper echelon of chips remains.
This is just another case of political appeasement. Nvidia has been in hot water with Washington and Beijing, so they’ll do just about anything to cool things down a bit. But hey, $5 billion is $5 billion.
Hey, all Peter Zeihan here come from Colorado. And today we’re taking a look at the 18th of September, purchased by Nvidia of roughly $5 billion of stock in American semiconductor manufacturing firm Intel. Now, Intel is by far the largest of the American fab companies. But it gets a bad rap because it’s not TSMC. TSMC, of course, is a Taiwanese based company that is the world’s premier. That makes all the leading processing nodes, especially if it’s below four nanometers.
Intel is trying to catch up with mixed results. And, in the market, it generally is discounted significantly because it’s not TSMC. And every time they fail to catch up, they get punished. That doesn’t mean it’s not a good company. That doesn’t mean it doesn’t produce a lot of product.
But if your goal is to make the best of the best, Intel doesn’t do it.
This is not going to change that. Now, a few weeks ago, the US government under Donald Trump took a 10% share. This will give Nvidia roughly a 4% share. But let’s talk about how semiconductors happen. And then you’ll see that this is not nearly as big of a deal as it might appear at first glance.
What typically happens is a large consumer of microchips, a Google and Apple, something like that comes to a company like Intel or TSMC, and says that we want to make a new chip that does X, Y, and Z. Here are the parameters we want in terms of performance. And Intel slash TSMC says you’re at the wrong place. You need to go talk to a design firm.
And so you find a design firm and you jointly put this thing together. All the strategic architecture and then you take that back to your TSMC or your Intel, and then you redesign it again, and you build an instruction booklet that is a few thousand pages of all the steps that are necessary to craft each and every tiny little bit of what goes into each and every aspect of a semiconductor that is then farmed out to an ecosystem that is around the semiconductor fabrication firm, all the companies that build all the individual pieces, all the companies that do all the testing in the incorporation of those pieces into larger chips, motherboards and products. Hundreds of companies involved. And you then get this very thick instruction book, probably several thousand pages. Now, which you hand to TSMC or you hand to Intel. And they use that to follow the instructions to the letter to make the chips.
Which means a design company like Nvidia partnering with a fab company like Intel. It’s not that it’s a negative, but it kind of misses all the steps in between. Now, Nvidia has been beat around the heads and shoulders first by the American government and most recently by the Chinese government, primarily over its seeming inability and unwillingness to apply technological sanctions and limit their sales to China.
Nvidia is willing to bend the rules. There’s no argument there, and it seems that in order to placate the Trump administration, they’re putting a what sounds like a big investment, $5 billion into Intel. But this really doesn’t move the needle for anyone. It doesn’t speed up the process. All it does is perhaps give Nvidia an inside track to communicating with Intel in the circumstances, when they decide to build chips that are not cutting edge.
So it makes a lot of people smile. It makes a lot of people think that, ooh, Intel is going to get better. Nvidia doesn’t have what Intel needs to get better. That would be TSMC. That would be ASML, the company that makes the high end lithography systems. That would be this constellations of dozens, hundreds of mid-tier companies that contribute individual pieces, a lot of which don’t exist in Intel’s network because they’re in Taiwan.
So it looks nice. And having a few extra billion dollars is never a bad idea if you’re trying to expand your output. But if you’re thinking that this partnership is what is necessary for Intel to turn the page and all of a sudden move up to, say, 2 or 1 nanometer. No, because Nvidia doesn’t have that technology. Nvidia does design, not manufacturing.
Don’t get the two confused.
