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Why Intel Corporation (INTC) Stock Will Benefit From AMD Deal

May 16, 2017
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Take it all with a grain of salt, because it might not be true. On the other hand, by the time you’re reading this, it may well have been confirmed. That is, chipmaker Intel Corporation (NASDAQ: INTC ) is reportedly going to be leaning more on Advanced Micro Devices, Inc. (NASDAQ: AMD ) to meet its graphical display technology needs, and less on Nvidia Corporation (NASDAQ: NVDA ). The so-unconfirmed report catapulted AMD stock 8% higher, though it didn’t have any measurable impact on the value of NVDA or INTC stock.

Why Intel Corporation (INTC) Stock Will Benefit From AMD Deal Source: Shutterstock

The rumors will (hopefully) be verified or debunked at Tuesday afternoon’s analyst day event, which includes a Q&A session during which the matter will almost certainly be brought up.

Given the fact that this is an idea that has surfaced once before and was rekindled by a reasonably credible source, though, investors may want to take note.

Intel and AMD: Just Rumors So Far, But…

This isn’t the first time NVDA or INTC stock owners have heard about the possibility. The buzz first surfaced in March … the same month Intel’s GPU licensing deal with Nvidia expired .

Although Intel clearly has to use some sort of technology to connect computer screens with the computer itself, several choices – including Nvidia’s technology no longer protected by patents – are at its disposal.

With something of a next-generation era of computing requiring next-generation display management, however, Intel has to offer cutting-edge GPU (graphics processing units) tech if it wants to remain competitive.

Advanced Micro Devices, which competes with Nvidia in the GPU market, was a widely presumed GPU partner simply because AMD is already working with Intel on some other fronts and tapping Advanced Micro Devices for its graphical processing know-how would be a strong gesture of good faith.

There’s also the not-so-small matter that Nvidia has sued partner Intel in the past, forcing it to abode by an agreement that was less than ideal.

Fast forward to today. Technology news website Fudzilla broke the story that Intel is using AMD’s graphics tech . Fudzilla reporter Fuad Abazovic’s exact words: “We can now confirm the rumors that Intel has given up on Nvidia because it has written a cheque to license AMD’s graphics.”

Abazovic was the only interested party willing or able to confirm the deal. An official response from AMD explained :

“We haven’t announced any licensing deals with Intel and, as a matter of policy, don’t comment on rumor or speculation. We do have our financial analyst day this afternoon and will have an executive QA session, so the question may come up from someone in the room and be addressed then. For now, we aren’t commenting on the speculation per corporate policy.”

Neither Nvidia nor Intel have said a word about the rumor either.

So What?

Not than an official confirmation would divulge such details, but the licensing deal Intel had with Nvidia was reportedly worth $200 million per year in royalties. Presuming any deal with AMD would be similarly sized, such an agreement could add $200 million worth of high-margin revenue to Advanced Micro Devices’ annual top line of around $4.4 billion.

From that perspective, even if there was some truth to the whispers, it would be tough to deem the deal a game-changer for AMD or for INTC stock.

It’s a key moral victory – and highly visible victory – for Advanced Micro Devices though, and one that sets the stage for a deeper partnership with Intel. Intel makes chips and chipsets for a variety of technology names, and AMD’s technology could easily piggyback on Intel’s widespread presence within the tech arena. In the meantime, the deal could prompt other technology makers to take a second look at AMD, if only to determine why Intel made the switch.

While the rumored agreement isn’t quite as significant for Intel, inasmuch as AMD has wiggled its way back to relevancy with the its new Ryzen CPU and its upcoming Vega GPU , consumers and companies that hadn’t been looking at Intel before may be looking at Intel now, just to purchase a combination of processing and display technology that’s sure to be one of the best in its class.

Bottom Line for INTC Stock

Should the rumors end up being true, AMD is the big winner here. But, Intel stock certainly isn’t a loser. Its relationship with Nvidia has been strained in the shadow of the lawsuit, and it’s not particularly clear if aligning itself with the company has actually added revenue that wouldn’t have been garnered anyway.

There’s no real assurance that aligning itself with Advanced Micro Devices will do much to bolster revenue either, though it shouldn’t hurt. If nothing else though, INTC stock owners can enjoy the fact that Intel and Advanced Micro Devices are deepening a relationship that could bear fruit on other, separate fronts.

That is, of course, if there’s any truth to the rumor. All will (probably) be revealed by late Tuesday afternoon.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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The post Why Intel Corporation (INTC) Stock Will Benefit From AMD Deal appeared first on InvestorPlace .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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