Intel (INTC 2.32%) has finally entered the market for discrete graphics processing units (GPU) that has so far been the playground of Nvidia (NVDA -4.35%) and Advanced Micro Devices (AMD -4.71%). And the good part is that Chipzilla (as Intel is known) has made a smart move to tap this lucrative space that could help take share away from its rivals.
Intel officially launched the first batch of its Intel Arc A-series mobile graphics cards for laptops and notebooks on March 30 -- the Arc A370M and the Arc A350M. These Arc 3 graphics cards are the entry-level models in the company's stable that are meant to enhance the gaming experience for those on a budget. So Intel appears to be going after the low-hanging fruit first in the discrete graphics card market, and it seems like the right strategy. Let's see why.
Laptops and notebooks could give Intel's GPU business a good start
Intel points out that the Arc 3 graphics cards can run popular AAA games such as Doom Eternal, Hitman 3, The Witcher, and Destiny 2 among others, at more than 60 frames per second at 1080p resolution -- a big jump compared to laptops with Intel's own integrated graphics cards. What's more, the chipmaker says that its new cards can run competitive esports games such as Fortnite, Rocket League, and Valorant at more than 90 frames per second at 1080p resolution, which is again a huge increase over laptops equipped with integrated cards.
It is worth noting that Intel didn't benchmark its cards against AMD's and Nvidia's laptop-centric GPUs. Instead, the company focused on the gains that the Arc 3 GPUs can score over Intel's Iris integrated graphics cards. This looks like a smart thing to do for a few reasons.
For instance, the gaming laptop market has gained impressive momentum in recent years. Nearly a quarter of the laptops sold last year were in the gaming category, up from around 10% in 2017. So laptops are witnessing an increase in discrete GPU adoption, and there is a lot of room for growth on this front. According to a third-party estimate, the gaming laptop market is expected to generate nearly $18 billion in revenue by 2026 as compared to $11 billion in 2020.
Intel, therefore, is looking to make the most of the growing demand for gaming laptops. That's possibly why it is focusing on the gains that its Arc 3 GPUs are likely to bring over the usual laptops with integrated cards: so that it can bring the first-time buyer of a gaming laptop into its fold.
Moreover, with Arc 3-equipped laptops starting at a price of $899, they could attract consumers looking to buy a gaming laptop without breaking the bank. All this could help make Intel a viable third player in the gaming laptop market, especially considering that its Arc GPUs are expected to power at least 50 designs of laptops and desktops from several original equipment manufacturers such as Acer, ASUS, Clevo, Dell, Gigabyte, Haier, HP, Lenovo, Samsung, MSI, and NEC.
Going all-in on the GPU opportunity
The Intel Arc 3 graphics cards will be followed by the Arc 5 and Arc 7 series cards in early summer. The upcoming cards will pack more cores, have better ray-tracing capability, and will be equipped with more memory to support advanced and high-performance gaming. Additionally, Intel plans to release desktop GPUs this summer as well.
It remains to be seen how Intel's cards will fare against the likes of Nvidia and AMD in independent testing. But the chipmaker's top line could get a nice boost in the coming years if it is able to carve even a small portion of the discrete GPU market. Jon Peddie Research estimates that discrete GPU sales could hit $54 billion in 2025.
A 10% share of this market could result in more than $5 billion in annual revenue for Intel and help accelerate the company's turnaround. Chipzilla has started taking share away from AMD in the CPU (central processing unit) market already, and success in GPUs could further accelerate its growth. That's why investors looking to buy a semiconductor stock on the cheap can consider Intel as it makes the right moves to regain its mojo and is trading at just 9.7 times earnings.