Nvidia (NASDAQ:NVDA) is considered the world’s top seller of artificial intelligence (AI) chips because its product has so far been unbeatable. The company makes the most powerful chip on the market today, helping companies perform training and inference tasks for their AI models. This has helped Nvidia’s profits soar into triple digits over the past year – and its share price has followed suit with a rise of more than 200% over the past year.
In the meantime, rival Intel (NASDAQ:INTC) I didn’t fare so well. Recent lower demand for personal computers has weighed on sales. Additionally, Intel fell behind in the race for artificial intelligence (AI) chips. All of this has left the company’s shares trading at half their 2020 levels.
However, the tide could soon turn as Intel expands its AI portfolio. Just this week, the company announced its new AI chip Gaudi 3. Can this new product let Intel overtake Nvidia?
The performance of Gaudi 3
Let’s start with some details about this new Intel chip. The company says Gaudi 3 offers four times more AI computing power and a 1.5x increase in memory bandwidth compared to its predecessor.
Importantly, Intel’s new chip could potentially challenge Nvidia’s most powerful graphics processing unit (GPU), the H100. The Gaudi 3 can deliver 50% faster training time than the H100 when used on certain large language models (LLMs) – for example Llama 2.
Its inference throughput could outperform the H100 by an average of 50%, and the product is also more power efficient than Nvidia’s. Intel didn’t give a price range for the Gaudi 3, but said it offers better performance than the H100 “at a fraction of the cost.” The company plans to make Gaudi 3 available to companies building platforms with these chips in the second quarter.
Does this mean Intel is on its way to displacing Nvidia? Not necessarily.
It is important to remember that Gaudi 3 performance levels are “average” and certain LLMs are used on certain parameters. And Nvidia doesn’t stand still when it comes to product innovation. The company recently announced its new Blackwell architecture and its most powerful chips ever, the B100, are scheduled to launch later this year.
Even if Intel’s Gaudi 3 outperforms the H100, it’s very likely that Nvidia will jump to the top in terms of performance with the release of the Blackwell platform. I don’t see Gaudi 3 as a threat to demand for Nvidia’s products or the company’s long-term earnings prospects.
An important catalyst for Intel
I see the product as an important catalyst for Intel’s earnings and share price performance. Demand for AI chips is high and is expected to continue to grow – the AI market is expected to reach more than $1 trillion by the end of the decade. It is unlikely that a single company can meet all of this demand.
Here’s another point to keep in mind: Cost is an important factor that many companies consider when launching AI programs, and some of them don’t necessarily need the most powerful chip in the world. This leaves plenty of scope for a high quality product that offers great performance at a reasonable price to secure a place in the market.
Intel probably won’t get past Nvidia to become the world’s largest AI chip maker, but the Gaudi 3 could give the company a much-needed profit boost. As more companies – with a variety of budgets and needs – adopt AI programs, the opportunities for Intel and other companies that make high-performance chips will multiply. Intel’s focus on performance at a lower cost could help it carve out a niche.
An Intel survey of 430 tech professionals found that only about 10% of their companies had brought generative AI models into production last year. This reinforces the idea that we are in the early days of the AI boom.
As for stock performance, if Gaudi 3 and Intel’s other new AI products take off, Intel stock could beat Nvidia when it comes to percentage gains. After a 45% decline over the past three years, Intel is ripe for a recovery. Trading at 27 times forward earnings estimates means the stock is fairly valued.
While the launch of Gaudi 3 isn’t bad news for Nvidia, it’s definitely great news for Intel and its shareholders.
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in Nvidia and recommends it. The Motley Fool recommends Intel and recommends the following options: long January 2023 calls for $57.50 on Intel, long January 2025 calls for $45 on Intel, and short May 2024 calls for $47 on Intel. The Motley Fool has a disclosure policy.
Will Intel’s new artificial intelligence (AI) chip overtake Nvidia? was originally published by The Motley Fool