By Supantha Mukherjee and Louise Rasmussen
STOCKHOLM (Reuters) -Nvidia will pay $1 billion for a 2.9% Nokia stake as part of a deal focused on AI and data centers, the Finnish telecom equipment maker said on Tuesday as its shares hit their highest level in nearly a decade.
Nokia said the companies will collaborate on artificial intelligence networking solutions and explore opportunities to include its data center communications products in Nvidia’s future AI infrastructure plans.
Capital expenditure on data center infrastructure is expected to exceed $1.7 trillion by 2030, consulting firm McKinsey estimates, largely because of the expansion of AI.
Nvidia has a near-monopoly in supplying chips for data centers and has partnered with companies ranging from OpenAI to Microsoft.
“This is a strong endorsement of Nokia’s capabilities,” said PP Foresight analyst Paolo Pescatore, adding: “Next-generation networks, such as 6G, will play a significant role in enabling new AI-powered experiences”.
Nvidia CEO Jensen Huang said the deal would help make the U.S. the center of the next revolution in 6G.
“Thank you for helping the United States bring telecommunication technology back to America,” Huang said in a speech in Washington D.C., addressing Nokia CEO Justin Hotard.
Nokia’s shares closed up 20.86% after the deal announcement, a high last touched in late January 2016.
PROPOSED PARTNERSHIP MUTUALLY BENEFICIAL, ANALYST SAYS
Nokia, which uses Marvell chips for many of its products, and its Swedish rival Ericsson both make equipment for connectivity inside data centers and between data centers and have been benefiting from increased AI use.
While Nvidia chips are likely to be more expensive, said Mads Rosendal, analyst at Danske Bank Credit Research, the proposed partnership would be mutually beneficial, given Nvidia’s large share in the U.S. data center market.
Meanwhile, ING analyst Jan Frederik Slijkerman told Reuters that Ericsson’s reliance on Intel may become a strategic vulnerability if the chipmaker’s turnaround lags.
“Facing this competition, we wonder how Ericsson will accelerate the development of semiconductors for future use in its AI-based RAN technology,” Slijkerman said.
NEW NOKIA CEO BETS ON AI GROWTH, DATA CENTER BUSINESS
Since joining Nokia this year, Hotard, who earlier led Intel’s data centers and AI group, has focused on growing its data center business.
Nokia’s third-quarter profit beat market expectations last week, helped by sales to AI-driven data centers following its acquisition of U.S. optical networking firm Infinera.
Nokia said it will issue 166,389,351 new shares for Nvidia, which the U.S. company will subscribe to for $6.01 per share.
Separately, the two companies will also partner with T-Mobile U.S. to develop AI radio technologies for developing 6G and start trials from next year, Nokia said.
(Reporting by Supantha Mukherjee, Louise Rasmussen and Johan Ahlander, additional reporting by Gianluca Lo Nostro; Editing by Gareth Jones, Joe Bavier and Alexander Smith)
