Chip giant Intel(NASDAQ: INTC) 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.
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(NYSE: IBM) 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.
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Timothy Green has positions in Intel and International Business Machines. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Intel and International Business Machines and recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
