Nvidia stock rises as company announces $3.5B investment in MediaTek

Nvidia NVDA shares rose nearly 1% on Monday after the chipmaker announced a $3.5 billion investment in Taiwan-based MediaTek, deepening a partnership focused on artificial intelligence (AI) infrastructure and data-center technology.

Nvidia will purchase bonds convertible into MediaTek shares, according to a joint statement from the companies.

The transaction represents Nvidia's largest direct investment outside the US and comes as the company works to expand the reach of its technology across the AI hardware ecosystem.

The expanded partnership will see MediaTek adopt Nvidia's NVLink Fusion and newly announced NVHBM technologies.

The tools are designed to help components communicate more efficiently within data centers, allowing MediaTek's technology to integrate more closely with systems used by major cloud and technology companies.

Nvidia CEO Jensen Huang described the agreement as a significant expansion of an existing relationship.

"We've already had a big partnership with MediaTek. Today, we are going to make it a lot bigger," Huang said in an interview with Bloomberg Television. He added that the companies' engineering roadmap extends for a decade.

Nvidia seeks to extend AI infrastructure reach

The agreement is part of Nvidia's broader effort to maintain a central position in AI infrastructure even as major customers develop their own chips.

MediaTek is seeking to expand beyond its traditional reliance on the smartphone market and is increasingly positioning itself as a design partner for large technology companies developing custom AI processors.

Its recent partnerships include Alphabet's Google, while Nvidia and MediaTek are also working together on the chipmaker's efforts to enter the laptop market.

MediaTek is helping Nvidia develop its RTX Spark product for laptops.

The Taiwanese company previously forecast AI chip sales of about $2 billion this year and is targeting a 15% share of an $80 billion segment next year.

The Nvidia investment follows a similar expansion of cooperation with Amazon.

Amazon agreed to deploy an additional 2 million Nvidia components and use Nvidia's connection technology with its own internally developed chips.

Huang said the expanded relationship means both companies are broadening their respective supply chains.

MediaTek's XPU technology will become part of Nvidia's supply chain, while Nvidia's networking ecosystem becomes part of MediaTek's.

MediaTek gains as custom AI chips expand

The deal comes as hyperscalers including Amazon, Google and Microsoft increasingly develop in-house chips to complement or replace some Nvidia hardware.

Despite those efforts, Nvidia continues to forecast strong growth. The company expects sales to increase by more than 70% next year.

The scale of Nvidia's investment in companies across the AI ecosystem has also raised concerns among some investors about potentially circular relationships between chip suppliers and their customers.

Huang rejected that characterization in discussing the MediaTek agreement.

"This is not circular because obviously they do their own business and we do our own business, and MediaTek is already incredibly profitable, incredibly successful," Huang said.

Meanwhile, Melius Research raised its Nvidia price target to $420 from $400 while maintaining a Buy rating. The firm highlighted Nvidia's expectation for more than 70% revenue growth next year despite lower gross margins.

Nvidia's purchase commitments also increased to $279 billion from $119 billion, while total commitments reached $366 billion, largely reflecting memory requirements.

The company said it plans to return more than 60% of free cash flow to shareholders, with buybacks expected to increase next year.

Melius raised its fiscal 2029 earnings-per-share estimate to $21.11 and based its new price target on a multiple of 20 times that estimate.

The firm said Nvidia could be approaching another breakout, although it acknowledged continuing concerns surrounding the broader AI trade.