Shares of Intel (INTC 22.81%) are flying this week, up 27% as of market close on Thursday. The jump comes as the S&P 500 and Nasdaq-100 gained 0.7% and 1.5%, respectively.

The chipmaker’s stock exploded this week after Nvidia announced a $5 billion investment and “multigeneration” partnership agreement with Intel.

Nvidia bets on Intel

On Thursday, Nvidia said it is investing $5 billion into the struggling company at a purchase price of $23.28 a share. Under the partnership terms, Intel will make custom CPUs that Nvidia will use in its AI data center platforms. Intel will also make use of Nvidia’s technology to enhance its PC offerings.

Intel’s CEO, Lip-Bu Tan, said the move will help the company in its turnaround efforts, allowing it to “go to market to win.” A key question remains on what the deal will mean for Intel’s foundry business. Nvidia’s Jensen Huang told investors that Taiwan Semiconductor Manufacturing Company (TSMC) will remain its primary fabricator. However, it’s possible that Nvidia could still make use of Intel’s manufacturing capabilities for certain products.

Image source: Getty Images.

Nvidia’s stake could make the difference for Intel

This is a critical time for Intel. The dominant U.S. chipmaker for years, the company fell behind in the age of generative AI. Its top and bottom lines have taken a severe beating, and the company has gone through significant restructuring and major layoffs in an attempt to stabilize its balance sheet.

While this investment is certainly encouraging, there are still some questions, especially around Intel’s manufacturing. This could be a major step in Intel’s revival, or it could be an early step in Intel being stripped for parts. One Wall Street manager said the company could become “a shadow of its former self” with a fate similar to that of Xerox.

I’m cautiously optimistic. For investors comfortable with risk, Intel is a good pick.