This article first appeared on GuruFocus.
Nvidia's (NASDAQ:NVDA) $3.5 billion investment in MediaTek is giving the Taiwanese chipmaker another route into the fast-growing custom AI processor market, while extending Nvidia's reach beyond its own chips.
MediaTek shares jumped 10% higher Tuesday after the companies detailed the partnership. Nvidia purchased convertible bonds issued by MediaTek as part of the transaction.
Warning! GuruFocus has detected 4 Warning Signs with NVDA.
Is NVDA fairly valued? Test your thesis with our free DCF calculator.
The agreement will bring Nvidia's NVLink Fusion technology to MediaTek's custom AI chip customers. The platform is designed to connect third-party processors with Nvidia's broader AI computing systems.
MediaTek has been expanding beyond smartphone processors into data-center silicon as cloud companies develop chips tailored to their workloads. The company said in June that its custom AI chip business could generate $2 billion in revenue this year, with a potential market of as much as $80 billion by 2027.
The companies will also collaborate on AI computing for PCs and vehicles. MediaTek is Nvidia's latest partner as demand for customized AI infrastructure grows.
What it means for the stock: The Nvidia investment could support MediaTek's push into data centers while giving Nvidia another avenue to participate in custom AI computing.
