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Nvidia has agreed to invest $5bn in its struggling rival Intel as part of a deal to develop new chips for PCs and data centres, the latest reordering of the tech industry spurred by artificial intelligence.

Intel’s shares surged 29 per cent in pre-market trading on the Thursday announcement, which unites two of Silicon Valley’s longest-running competitors.

The deal comes a month after the US government agreed to take a 10 per cent stake in Intel, as Donald Trump’s administration looks to secure the future of American chip manufacturing.

However, the pair’s announcement makes no reference to Nvidia using Intel’s foundry to produce its chips.

Intel, which has struggled to gain a foothold in the booming AI server market, lost its crown as the world’s most valuable chipmaker to Nvidia in 2020.

On Thursday Jensen Huang, Nvidia’s chief executive, hailed a “historic collaboration” and “a fusion of two world-class platforms”, combining its graphics processing units, which dominate the market for AI infrastructure, with Intel’s general-purpose chips.

“Together, we will expand our ecosystems and lay the foundation for the next era of computing,” Huang said.

Nvidia will buy $5bn worth of Intel stock at $23.28 per share. In pre-market trading, Intel’s shares rose to $31.97, their highest level since July last year. Nvidia’s shares rose 3 per cent.

Under the new agreement, Intel will build custom central processing units for Nvidia to build into its AI platforms for data centres, as well as a separate project to develop PC chips.

“We appreciate the confidence Jensen and the Nvidia team have placed in us with their investment and look forward to the work ahead as we innovate for customers and grow our business,” said Lip-Bu Tan, Intel chief executive.

Shares in Arm, Nvidia’s current partner on CPUs, were down 5 per cent in pre-market trading. Last month, Japan-based SoftBank, Arm’s majority owner, said it would purchase $2bn worth of Intel shares.

Intel has struggled to secure external customers for its manufacturing operations and its chipmaking business is losing billions of dollars.