Chip giant Intel (INTC 0.21%) has lagged behind market leader Nvidia and rival Advanced Micro Devices in the AI accelerator market. As Nvidia churns out more than $26 billion of data center revenue each quarter and AMD remains on track to sell $4.5 billion worth of AI accelerators this year, Intel finds itself in a distant third place.
Intel's new Gaudi 3 AI accelerator, which launched this year, is powerful and cost effective. However, winning customers is proving to be a challenge. Intel has said that it expects to generate just $500 million in revenue from Gaudi 3 sales in 2024, a pittance compared to Nvidia and AMD.
NASDAQ: INTC
Key Data Points
Intel teams up with IBM
While 2024 will be a tough year for Intel's AI chip business, 2025 is shaping up to look better. Last week, Intel and IBM (IBM 1.88%) announced a collaboration that will put Intel's Gaudi 3 chips inside IBM's cloud data centers. IBM will be the first cloud service provider to adopt Gaudi 3 when the collaboration bears fruit in 2025.
In addition to IBM making Gaudi 3 chips available as part of its cloud platform, the tech giant is also integrating Gaudi 3 with its Watsonx AI platform. IBM has found a niche in the AI market by catering to enterprise customers and pairing its Watsonx platform with its vast consulting business. The company has so far booked over $2 billion worth of business related to generative AI.
The plan is to use Gaudi 3 to lower the total cost of ownership for IBM's enterprise customers. AI chips from market leader Nvidia have become the gold standard but are also expensive. Intel has made a point to highlight the affordable nature of its Gaudi 3 chips, taking the unusual step earlier this year of publishing pricing for system providers. The company claims that an AI kit featuring eight Gaudi 3 chips is just two-thirds the cost of comparable competitive platforms.
Notably, Gaudi 3 will be available for hybrid and on-premise environments as part of IBM's cloud offering. IBM's cloud strategy revolves around hybrid cloud computing, which combines public cloud computing with on-premises infrastructure. Hybrid cloud has become increasingly popular among enterprises with complex IT infrastructures.
An important win
To say Intel is going through a rough patch would be an understatement. The company's turnaround, centered on its semiconductor manufacturing ambitions, is faltering. Intel announced extensive layoffs along with its disappointing second-quarter report, and the company is likely to sell assets and exit noncore businesses as it works to shore up its finances.
The IBM collaboration is a much-needed piece of good news, and it is a sign that Intel's Gaudi 3 AI chips are an attractive proposition for cloud service providers. There was no talk of the scale of the Gaudi 3 deployment, but getting its AI chips into cloud data centers is a big win for Intel.
While Intel's AI chip business won't move the needle this year, momentum is finally starting to build for the company's Gaudi 3 accelerators.
