Over the last few years, graphics processing pioneer NVIDIA Corporation (NVDA 4.14%) has been riding high on its growing success in the area of artificial intelligence (AI). Scientists found that the parallel processing capabilities that make graphics processing units (GPUs) superb at rendering images in video games also worked well for data processing in AI systems. NVIDIA moved quickly into the space, establishing itself in the majority of data centers running AI applications. Growth from AI has exceeded 174% on average in each of the last five quarters and now accounts for nearly 19% of NVIDIA's revenue. Its stock has surged over 800% in the last three years and has shown no signs of slowing.
Competition may be heating up, however, as Advanced Micro Devices, Inc. (AMD 7.44%) no longer seems content to cede the space to NVIDIA. Several recent wins of big-name customers show that AMD may represent a bigger threat to NVIDIA than previously believed, and the company may be becoming a serious competitor in the nascent AI market.
Can AMD's new line of AI-enabled GPUs unseat NVIDIA? Image source: AMD.
The underdog
NVIDIA and AMD have long been competitors in the GPU market. NVIDIA controls just over 70% of the discrete desktop GPU market, while AMD accounts for the remainder. The gaming segment represents the largest share of business for both companies, but the AI market may be an even bigger opportunity going forward.
With the recent release of its Radeon line of GPUs, which were designed specifically to address the high-performance requirements posed by systems running AI applications, AMD is announcing to the world that it wants to be a contender.
Several notable wins
E-commerce giant Amazon.com, Inc. (AMZN 1.97%) announced that it will use AMD's Radeon Pro GPUs to run graphics software on its Amazon Web Services (AWS) cloud computing platform. Amazon indicated that this new offering would allow users to run the graphics-intensive software, like those used in engineering and graphics design applications, in the cloud. Amazon is the undisputed leader in cloud computing, and this partnership could potentially be a big win for AMD and result in future opportunities.
This follows a recent announcement by China's internet search leader Baidu (BIDU 4.92%) that it would collaborate with AMD for "optimizing software for AMD Radeon Instinct GPUs in Baidu datacenters." Baidu and NVIDIA have a long history together, so this announcement came as something of a surprise. Baidu has one of the most advanced AI programs in China and perhaps in the world, so this partnership gave AMD a shot of credibility in the AI market.
The most intriguing bit of news came recently when CNBC reported that electric car company Tesla, Inc. (TSLA 3.59%) was working with AMD to develop a chip specifically designed for the data-intensive challenges of self-driving cars. Tesla is one of a number of innovators working to perfect autonomous driving systems, and it currently uses NVIDIA GPUs in its Autopilot system. If AMD were to develop a custom chip that was capable of outperforming NVIDIA, this would mark a significant turn of fortunes for the two companies.
A shot at the title?
It is important to note that the CNBC story cited unnamed sources, and there is some doubt the veracity of the report. Global Equities Research analyst Trip Chowdhry called the report "completely false," noting that Tesla and NVIDIA had a five-year contract that had recently been renewed. He also noted the complete lack of benchmarks for AMD running AI systems. RBC Capital Markets analyst Mitch Steves noted that the report was "unsubstantiated" and that even if it were true, NVIDIA would remain "the de-facto standard and market share leader."
The data center market for AI applications is enormous and still in its infancy. A report by MarketsandMarkets estimates that the AI chipsets market will grow at a compound annual growth rate of 62.9% over the next five years, totaling $16 billion by 2022.
NVIDIA is the incumbent and as such has its title to defend, while AMD is the scrappy underdog. This isn't a zero-sum game, and just as it has done for years in the gaming market, AMD will likely carve out a niche in the emerging field of AI. NVIDIA shareholders shouldn't lose any sleep at this point, but any high-profile wins should be monitored carefully, as AMD would love to get NVIDIA on the ropes.
