Intel (INTC 1.13%) has been hit hard by rival Advanced Micro Devices (AMD 1.30%) in the x86 CPU (central processing unit) market, losing share in servers and PC processors thanks to the latter's technological advantage.
But Chipzilla is now taking aim at AMD as well as Nvidia (NVDA 3.26%), with a move into the multibillion-dollar discrete graphics processing unit (GPU) market.
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Intel has set its sights on a massive opportunity
Intel recently revealed that the first generation of its Arc discrete graphics cards will arrive in the first quarter of 2022. Chipzilla says that its cards will "deliver high-performance gaming, immersive visuals, and seamless game streaming and creation experiences."
Codenamed Alchemist, the first-generation discrete graphics cards from Intel will include ray-tracing technology and artificial intelligence-based supersampling. Rivals AMD and Nvidia already pack such technology into their cards, and gamers have been eagerly buying their latest generation GPUs to elevate the gaming experience. What's more, Intel's roadmap indicates that it has three more generations of its Arc graphics cards -- Battlemage, Celestial, and Druid -- lined up after Alchemist, which means that it plans to consistently improve its GPUs with time.
All of this is an indication that Intel is serious about making a dent in the discrete GPU market, which may herald a much-needed turnaround in the company's fortunes and help arrest the recent slide in its financial performance. More importantly, there are a few reasons Chipzilla could take market share away from the likes of AMD and Nvidia once it launches its cards.
First, the Alchemist GPUs will be based on Taiwan Semiconductor Manufacturing's 6-nanometer (nm) N6 process node. AMD's current RDNA 2 gaming GPUs are based on a 7 nm process, while Nvidia's Ampere gaming GPUs are based on Samsung's 8 nm process. AMD is expected to make the jump to TSMC's 6 nm process when it launches its next-generation RDNA 3 graphics cards. Meanwhile, rumors suggest that Nvidia could make the jump to a 5 nm manufacturing process when it launches its next-generation cards -- codenamed Ada Lovelace -- in 2022.
The identical manufacturing processes mean that Intel could be on equal footing with Nvidia and AMD on the technology front. So, Chipzilla is coming into the GPU market with solid preparations that could make it a viable third choice for gamers, who have been struggling to buy graphics cards because Nvidia and AMD can't make enough of them.
This brings us to the second reason Intel may be able to cut its teeth in the discrete GPU market: Nvidia and AMD are unable to produce enough cards to meet the huge end-market demand.
Nvidia CEO Jensen Huang explained on the August earnings conference call:
RTX demand is quite incredible. ... And now, we reset the entire installed base and Ampere is off to just an incredible starting the best-selling GPU architecture in the history of our company. And yet, we've only upgraded some 20% -- less than 20% of our total installed base.
Similarly, AMD is also witnessing a robust demand environment, which is why CEO Lisa Su recently pointed out that supply would continue to remain tight despite the company's efforts to increase capacity.
Intel can fill the void to some extent by bringing a viable GPU alternative to Nvidia and AMD. It might be able to lure potential AMD and Nvidia customers into its fold and get off to a good start in the discrete graphics card market if it can produce enough units. As such, don't be surprised to see Intel doing well in the GPU market next year, which would bode well for the chipmaker thanks to the massive end-market opportunity on offer.
Long-term gains could be in the cards
It's evident that Intel is in the discrete graphics card game for the long haul, as the company has laid bare its roadmap that currently includes four generations of GPUs. Success in this market could add billions of dollars to Intel's revenue; discrete graphics cards are expected to generate $54 billion in revenue by 2025, up substantially from $23.6 billion in 2020, according to Jon Peddie Research.
Nvidia is currently the dominant player in this space with a market share of 83% in the second quarter, and AMD holding the rest. As it turns out, AMD is finding it difficult to withstand the competitive pressure from Nvidia, and this could be an opportunity for Intel to make a dent. If Intel starts taking away GPU market share from AMD and lures away potential Nvidia customers by producing enough cards and offering a steady flow of supply, it can gradually establish itself as a key player in the GPU market in the long run.
That could give Intel a much-needed boost, as the company's top line is on track to drop this year to $73.5 billion over 2020's revenue of $77.9 billion. The downtrend may continue in 2022 as per analysts' estimates, but steady progress in the GPU market could give Intel a much-needed break and help this tech stock regain its mojo.
