Nvidia, the leading manufacturer of artificial intelligence chips, said it will buy a $5bn (£4bn) stake in Intel – a lifeline for its struggling rival on the heels of a separate investment from the US government.

The deal, announced on Thursday, will involve a partnership between the two American companies to make personal computer and data centre chips, as demand for AI continues to surge and companies seek to power massive data centres.

It will make Nvidia one of of Intel’s biggest shareholders, with a roughly 4% stake in the troubled semiconductor company.

Intel’s stock surged more than 25% on news of the deal, which could boost the once-dominant chipmaker. Shares in Nvidia rose roughly 3%.

Intel has struggled in recent years to build out more chip capacity. It has fallen far behind rival Nvidia, which has dominated the AI boom by offering chips that are crucial for developing the technology.

Nvidia’s market cap has soared past $4 trillion while Intel’s has languished at around $100bn.

The new collaboration represents “a fusion of two world-class platforms”, Jensen Huang, Nvidia’s CEO, said in a statement.

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

In late August, the Trump administration announced that the federal government would take a 10% stake in Intel.

At the time, Commerce Secretary Howard Lutnick called the White House investment a “historic” agreement that “strengthens US leadership in semiconductors, which will both grow our economy and help secure America’s technological edge”.

The Trump administration’s announcement came after Intel became a target of US President Donald Trump. The president had accused Intel CEO Lip-Bu Tan of having problematic ties with China and called on him to resign, though Mr Tan called the accusations “misinformation”.

In response to the latest investment from Nvidia, Mr Tan said: “We appreciate the confidence Jensen and the Nvidia team have placed in us.”

Intel’s semiconductors were once a crucial part of the popularity of personal computers. But the company has failed to maintain its dominance in Silicon Valley over the past two decades. It has most recently taken a hit from its struggles to profit from the AI surge, in contrast to Nvidia’s success.

The American chipmakers’ partnership comes against a backdrop of challenges in the Chinese market. Nvidia is struggling with its sales to China, as the country seeks to ramp up its domestic chip production.

Nvidia has also found itself in the crosshairs of the US-China trade war – geopolitical tensions that are weighing on its sales. Mr Huang this week said he was “disappointed” that China has reportedly ordered its top technology companies to halt purchases of the firm’s AI chips.