Chip giant Intel (NASDAQ:INTC) has been utterly dominant in the world of server CPUs for many years. Even with Advanced Micro Devices (NASDAQ:AMD) finally churning out solid server chips in the form of its EPYC processors, Intel has retained a roughly 94% share of the market. Intel is the king of the data center, and it's been that way for a long time.

Things are now starting to change. On top of AMD's ongoing comeback in the server CPU market, graphics chip developer NVIDIA (NASDAQ:NVDA) agreed to acquire ARM Holdings earlier this year for a whopping $40 billion. While Intel and AMD develop chips based on the x86 instruction set, the standard in both the PC and server markets, chips based on ARM's architecture dominate the mobile device market. Various companies have tried to bring ARM chips to the data center with very limited success.

NVIDIA has a good shot at finally making ARM a first-class citizen in the data center thanks to its already vast business of selling graphics processing units to data center customers. In NVIDIA's most recent quarter, the company's data center segment pulled in $1.75 billion of revenue.

Servers in a data center.

Image source: Getty Images.

AMD opens another front

If AMD's server CPUs and NVIDIA's upcoming attempt to bring ARM to the data center wasn't enough, Intel is now facing another threat. On Tuesday, AMD agreed to acquire Xilinx (NASDAQ:XLNX) in a $35 billion all-stock deal. Xilinx designs programmable processors that can accelerate specific tasks. The company competes with Altera, which Intel acquired back in 2015.

AMD already sells CPUs and graphics processors aimed at the data center. With Xilinx in the fold, that portfolio will expand to include field programmable gate arrays and other specialized chips. Intel is working to expand its data center offerings by launching discrete graphics processors of its own.

With AMD's Xilinx deal and NVIDIA's ARM deal, both companies will be able to offer a broad array of data center products that rival Intel. AMD expects to close on the Xilinx deal by the end of 2021, while NVIDIA anticipates its acquisition of ARM to be finished in about 18 months.

Adding to Intel's problems

Even without an increase in competitive pressure, Intel is already having issues in the data center due to the COVID-19 pandemic. The company reported a 7% decline in revenue for its data center segment in the third quarter. Sales to enterprise and government customers plunged 47%, and sales to cloud customers grew at a subdued rate of 15%.

With Intel's data center customers dealing with unprecedented economic uncertainty, it's no surprise that some are pulling back on spending. In a tough economic environment, some Intel customers may explore alternatives in an effort to cut costs. A few years ago, there were no good alternatives to Intel. AMD is a viable alternative today for buyers of server CPUs, and NVIDIA could eventually be a major player if it can sell its customers on ARM chips.

Intel has done very well in a world where it faced little real competition in the data center. That world no longer exists. AMD is already chipping away at Intel's server CPU market share, and the Xilinx deal makes the company an even stronger competitor. NVIDIA will try to do the same with ARM-based chips. Intel's data center dominance won't disappear overnight, but significant market share losses are likely as competition heats up.