The discrete GPU market is currently dominated by NVIDIA (NVDA 0.35%) and AMD (AMD -0.29%). NVIDIA controlled 77.3% of the market in the first quarter of 2019, according to research firm JPR, while AMD claimed the remaining 22.7%. That duopoly makes it brutally tough for any new competitors to enter the market. That's why Intel (INTC) hasn't released a discrete GPU in over two decades.

However, Intel remains the largest maker of GPUs in the world, thanks to the widespread use of its integrated GPUs in laptops and non-gaming PCs.

GPUs being used to mine cryptocurrencies.

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Intel's upcoming return to discrete GPUs

Discrete and integrated GPUs serve different markets. Discrete GPUs, which are installed via add-in boards with their own RAM, are used for high-end tasks like gaming, professional visualization, and machine learning. Integrated GPUs, which are baked into motherboards, share a system's RAM and suffice for low-end tasks like browsing the web, typing documents, watching videos, and playing less-demanding games.

In late 2017, several reports claimed that Intel would leverage its leading positions in the CPU and integrated GPU markets to enter the discrete GPU market. It formed a new unit, the Core and Visual Computing Group, and hired AMD's former Radeon chief Raja Koduri to lead those efforts. Last year, it confirmed those reports and stated that the GPUs would arrive by 2020.

Koduri recently confirmed that those efforts remain on track, and revealed a few more details. Intel will transition all of its GPUs, both embedded and discrete, to the new "Intel Xe" brand, and Koduri hinted that the new discrete GPUs might use HBM (high bandwidth memory) chips, which are pricier but more powerful than the GDDR6 chips used in AMD and NVIDIA's newest mainstream cards. Earlier reports indicated that there would be two versions of the Xe: Arctic Sound, which will arrive first with edge, data center, and gaming variants, followed by a next-gen GPU called Jupiter Sound.

Not much else is known at the moment, but could Intel's return to discrete GPUs actually crack NVIDIA and AMD's duopoly?

Why is Intel developing its own discrete GPUs?

Intel is the largest maker of x86 CPUs in the world, but it licensed NVIDIA's technology for its own GPUs for years. That agreement expired two years ago, and Intel didn't renew the deal.

There were briefly rumors of Intel signing a new graphics licensing deal with AMD, but they turned out to be baseless. Intel partnered with AMD to integrate the latter's Radeon graphics with its laptop CPUs, but that deal wasn't part of a broader licensing pact.

Instead, Intel hired one of AMD's most influential Radeon leaders to develop its own discrete GPU chips. That was a smart strategy for three reasons. First, Intel previously paid NVIDIA $66 million in licensing fees every quarter, so developing its own in-house graphics technologies would save cash over the long term and reduce its dependence on a rival chipmaker.

A young woman plays a video game on a PC.

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Second, Intel can optimize its discrete GPUs to work better with its CPUs, or sell its CPUs and GPUs together in cost-effective bundles, which could be appealing for OEMs, enterprise customers, and consumers. Intel, which infamously subsidized OEMs with billions of dollars to (unsuccessfully) gain ground in the mobile chip market, would also likely sell its GPUs at paper-thin margins or losses to grow its market share against NVIDIA and AMD.

Lastly, Intel's in-house foundry could enable it to produce GPUs at a much faster rate than NVIDIA or AMD, which both outsource their chip production to external foundries. If Intel puts all those pieces together, it could become a formidable foe for NVIDIA and AMD.

Selling discrete GPUs would benefit Intel by diversifying its core client computing business away from CPUs for PCs and data centers. It could also counter NVIDIA's moves into the data center market with its machine-learning GPUs, since it could be more cost-effective for customers to buy bundles of Xeon chips and Xe GPUs.

But let's not get ahead of ourselves...

Intel's move into the discrete GPU market makes sense, but cracking NVIDIA and AMD's duopoly will be tough. Both brands have fiercely loyal supporters, who call themselves the "green" and "red" teams, respectively, and many games are optimized for their industry-standard cards.

NVIDIA and AMD are already struggling to sell more gaming GPUs due to longer upgrade cycles, high prices, a lack of compelling features in new GPUs, and a shortage of hit high-end "triple A" titles that exceed the limits of current-gen GPUs. Furthermore, Intel is still struggling with an ongoing chip shortage, and resolving that mess could delay the launch of its discrete GPUs.

In other words, it's impossible to tell if Intel can challenge NVIDIA and AMD yet. However, investors should still keep a close eye on Intel's future moves to see if it stands a chance.