The AI wars are starting to heat up.
Until now, Nvidia (NASDAQ:NVDA) has dominated the AI chip market with an estimated 98% share of the data center GPU market. However, Intel (NASDAQ:INTC) is now throwing its hat into the ring – the company launched its AI accelerator Gaudi 3 on Tuesday.
According to Intel, the new chip is well positioned to capture market share from Nvidia. Intel claims:
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The Gaudi 3 delivers an average of 50% better inferences and an average of 40% better power efficiency than the Nvidia H100
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The Gaudi 3 sells for a fraction of the cost of the H100.
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Intel said the new chip is available to manufacturers Dell Technologies, Hewlett Packard Enterprise, LenovoAnd Super microcomputer.
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In addition, new Gaudi customers and partners such as Bharti Airtel, Bosch, IBMand NielsenIQ.
Wall Street reacted mostly cautiously to the news. Intel shares rose 1% on Tuesday on heavy trading volume before slipping 3% on Wednesday on concerns related to the higher-than-expected inflation report.
Although Intel stock soared through 2023 on hopes of a cyclical recovery in the semiconductor sector and excitement around AI, the stock has remained flat in 2024, down 26% year-to-date, while the rest of the chip sector has continued to rise -Boom. Intel plunged in January on disappointing fourth-quarter guidance, and its stock fell sharply just last week when the company reported a $7 billion loss in its foundry segment in 2023 after restructuring its businesses. The company said losses would widen this year before it breaks even in the foundry business by 2027 and returns to profitability from then on.
Intel has long underperformed its peers, and its stock is still below its peak during the dot-com boom. Over the last decade, Intel shares have gained 38%, compared to a 176% gain for Intel shares S&P 500. However, the Gaudi 3 gives the company a chance at redemption.
What Gaudi 3 means for Intel
To get a sense of the capabilities of data center GPUs, all you have to do is take a look at Nvidia’s recent results. The leading AI chip company generated data center revenue of $18.4 billion in the fourth quarter, up 409% from the same quarter last year. In contrast, Intel reported a 10% decline in data center revenue to $4 billion.
The good news for Intel is that it doesn’t need to take much market share from Nvidia to make headway in AI chips – even $1 billion in revenue per quarter would make sense.
Nvidia’s AI super chips like the H100 are still in significant shortage, and its components sell at a premium, putting Intel in a good position to capture some market share. However, it will not be so easy to significantly weaken Nvidia’s leadership in AI.
Nvidia is stepping up its game
Intel’s Gaudi 3 press release and white paper tout its performance compared to Nvidia’s H100 accelerator, attributing its better throughput and conclusion to its large high-bandwidth memory (HBM), more efficient architecture, and HBM capacity.
The problem with this comparison for Intel is that Nvidia’s H100 will soon be replaced by the Blackwell platform that it announced at its developer conference last month. According to Nvidia, Blackwell is four times faster than the H100 and can run large language models with trillions of parameters at up to 25 times lower cost and power consumption than the H100.
Intel’s Gaudi 3 may have narrowed the gap to the H100, but Nvidia is still winning the AI race with Blackwell, which is expected to be available later this year.
Additionally, Nvidia’s CUDA software platform, which includes developer tools and libraries to help build AI applications, also gives it an edge over rivals like Intel, which is trying to match CUDA’s capabilities with an open source platform.
Finally, Intel’s cost advantage may be less advantageous than it seems. Billions and billions of dollars are currently flowing through the generative AI market, and investors and companies are ready to spend at this stage to gain a sustainable lead in generative AI, which could be a multi-trillion dollar market.
While some customers may be more price-conscious than others, processing power, speed and capacity are the key elements that Nvidia, Intel and others like modern micro devices compete here and not on price.
It will be difficult for Intel to dethrone Nvidia – the AI chip leader has been investing in this technology for several years, has a complementary software platform with CUDA and will fight for market share, which now accounts for the majority of its sales.
Intel may generate enough revenue to keep investors happy, but Gaudi 3 is unlikely to lead to a wholesale shift in AI leadership from Nvidia to Intel. Nvidia investors shouldn’t worry at this point.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Intel and International Business Machines and recommends the following options: long January 2023 calls on Intel for $57.50, long January 2025 calls for $45 on Intel, and short May 2024 calls for $47 on Intel. The Motley Fool has a disclosure policy.
Intel unveils its new artificial intelligence chip – can it compete with Nvidia? was originally published by The Motley Fool