The deal with Nvidia has propelled MediaTek into the big leagues of chipmakers. Its stock soared to the ceiling.

Taiwan-based MediaTek has joined the select group of artificial intelligence chip manufacturers after receiving the largest direct investment in history from Nvidia outside the United States, according to Bloomberg. The $3.5 billion deal deepens the collaboration between the two companies: Nvidia will acquire bonds convertible into MediaTek shares.

Under the terms of the agreement, MediaTek will use Nvidia technologies to develop chips tailored to the specific needs of AI companies and major cloud platform operators. These chips can be integrated into data centers built on Nvidia solutions, the agency reports.

The rally that has tripled MediaTek's stock price over the past year has gained new momentum, according to Bloomberg: at the opening bell in Taipei on September 1, the Taiwanese company's shares jumped 10% and hit the daily limit.

MediaTek has long held a strong position in the development of mobile and networking processors, but has recently been seeking to apply its accumulated expertise to the data center equipment segment. Google is already among the Taiwanese company’s clients in this segment. This shift toward server infrastructure means that MediaTek will have to compete with the American company Broadcom for the role of partner in developing AI chips tailored to the needs of tech giants, notes Bloomberg.

Francis Tan, an investment strategist at Indosuez Wealth Management, called Nvidia’s investment “an important sign of strategic confidence in MediaTek.” “It confirms that MediaTek is transforming from a manufacturer known primarily for smartphone chips into a much broader semiconductor company operating in the field of AI,” Tan said (as quoted by Bloomberg).

Jason Minsan Kam, an active equity management specialist at Kyobo Life Insurance, highlighted the technical aspects of the deal. “This strategic investment is designed to address one of the key challenges facing traditional AI data centers—providing ultra-high-speed connections using MediaTek’s cutting-edge networking technologies,” Bloomberg quoted him as saying.

According to S&P Global data cited by MarketScreener as of September 1, the consensus recommendation from 25 analysts on MediaTek shares is “Buy.” The average price target is 5,514 Taiwanese dollars ($174) per share, which is 27% higher than the closing price following the rally on September 1. Since early April, the target price has risen by 163%.

Nvidia entered into this agreement at a time when an increasing number of AI companies and major cloud providers—Amazon, Google, Microsoft, OpenAI, and Anthropic— are investing in the development of processors for their own needs to reduce their dependence on the leading chipmaker, TechCrunch notes. Deals like the partnership with MediaTek will allow Nvidia to remain the leading provider of core infrastructure for data centers, even if customers shift some of their computing to their own chips, the publication believes.

For Nvidia shareholders, the key question is whether the alliance with MediaTek will generate new demand for its technologies or turn out to be yet another instance of the company using its own balance sheet to support the entire AI ecosystem, writes Insider Monkey.

According to Bespoke Investment Group, the correlation between Nvidia’s stock and the PHLX Semiconductor Index over the past three months was only 0.03, whereas for Intel, TSMC, and Micron, it reaches approximately 0.9, as noted by GuruFocus . According to the publication, this suggests that Nvidia’s stock price may be more strongly influenced by investor expectations related to AI than by the overall performance of the semiconductor sector.

This article was AI-translated and verified by a human editor