AMD stock is in the tank right now, so proposals have been circulating they might be an acquisition target. However this combination makes no sense to me, and it took me a while to figure out why. Intel should be the one buying, and they should be buying Nvidia.
Nvidia is basically a fab-less operation. They design the chips but outsource the manufacturing. Intel is king of the fabs. Nobody, with the possible exception of IBM, can touch their fab technology lead at this point in time.
Intel makes integrated graphics accelerators but they are universally panned in the reviews. They're ok for spreadsheets and Solitaire, but if you want Unreal Tournament or Crysis, then you have to go with an add-on from ATI (AMD) or Nvidia. Despite the fact that most of the readers of this site probably have one already, the vast majority of computer users just make due with the integrated graphics. When AMD bought ATI enthusiasts hoped that the ATI graphics genes would find their way into AMD integrated chipsets, but it hasn't happened yet. In fact one could argue that merger marked the beginning of AMD's latest slide. Maybe an Intel/Nvidia merger would bear sweeter fruit.
Since AMD/ATI and Nvidia are the top two high end graphics card manufacturers, I imagine that there would be serioius anti-trust objections to any merger. By contrast, the product lines of Nvidia and Intel are complementary. And Nvidia has always had trouble getting official permission to work with Intel chipsets due to licensing issues. A merger would make those issues go away, giving the consumer more choice. Nvidia acquired some good talent and patents when it bought 3DFX; Intel could use that for its future plans and reduce the risk of lawsuits.
Finally, both Nvidia and ATI are working on novel techniques for massively multi-core computing. At SC07 "GPU computing" was all the rage. Using off the shelf hardware, programmers can get a 50x boost for certain scientific algorithms using the vector processors in a graphics card. Expect to see this trend continue, with 1,000 core engines available for a song later this year. Nvidia is the leader in this area. By teaming up with Nvidia, Intel could leap ahead of its rival and avoid some potentially nasty IP questions.
Intel and Nvidia are at the top of their games right now, so they both have high market caps on paper. A merger between Intel and Nvidia would be expensive, but from a technical and anti-trust point of view it makes a whole lot more sense than putting AMD/ATI and Nvidia together. What do you think?