Investors weren’t excited about chip giants intel‘s (INTC -1.75%) Fourth quarter report. Although the company beat expectations overall, its outlook for the first quarter was disappointing. Intel CEO Pat Gelsinger said the headwinds the company faced in the first quarter were temporary, but the market chastised the stock nonetheless.
Although Intel’s short-term fortunes depend on the PC and server CPU markets, the company is ultimately on track to generate billions of dollars a year from its artificial intelligence (AI) accelerator chips. Intel expects revenue from this emerging business to accelerate as the year progresses.
Demand for AI chips is rapidly increasing
Thanks to its acquisition of Habana Labs in 2019, Intel is already a player in the fast-growing market for AI accelerators. The company’s Gaudi series of chips is purpose-built for AI training and inference workloads and is a cost-effective alternative to market-leading high-performance GPUs. Nvidia.
In July 2023, Intel announced that its AI accelerator pipeline grew six times in one quarter to reach $1 billion. At the end of 2023, this amount exceeded 2 billion dollars.
This doesn’t mean Intel is making this much money from AI accelerators at the moment. In return, the company expects these commitments from customers to turn into revenue over time.
Gaudi 2 is Intel’s current generation AI chip that is driving much of this growth. It’s about as powerful as Nvidia’s top-of-the-line offering, but it wins in certain scenarios and offers solid performance per dollar. According to a recent blog post by DataBricks, the data company tested that Gaudi 2 had the second-best performance per chip and the highest performance per dollar using the cloud AI provider’s on-demand pricing. I found it to be a winner.
Intel plans to launch Gaudi 3 later this year, which could propel the AI accelerator business to new heights. The company promises to quadruple its processing power and double its network bandwidth. Intel said it recently increased the supply of both Gaudi 2 and Gaudi 3 to meet growing demand.
After Gaudi 3, Intel plans to integrate AI-focused GPUs and the Gaudi product line into its next-generation data center GPU, Falcon Shores. Falcon Shores is scheduled to launch in 2025.
huge market opportunity
When Intel acquired Habana Labs in 2019, the company predicted that the market for AI chips would exceed $25 billion by 2024. AI chips have more than just dedicated accelerators. Intel’s latest server CPUs are equipped with dedicated AI hardware, similar to the company’s Meteor Lake laptop chips.
Intel’s estimates turned out to be overly pessimistic. gartner The AI chip market is expected to reach $67 billion in 2024 and $119 billion by 2027. Other estimates put the market at nearly $400 billion by 2032. Although this estimate is not true, there is no sign that demand for AI chips will slow down anytime soon.
Nvidia currently dominates the AI accelerator market. Advanced Micro Devices is fighting back with its latest Instinct AI chip. Both companies are fierce competition for Intel, but the market is expected to be so large that there is room for multiple winners. Even if Intel ranks second or third in the long run, AI accelerators could ultimately generate billions of dollars in annual revenue for the chip giant.
Timothy Green has a position at Inter. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool endorses his Gartner and Intel recommendations and recommends the following options: A long January 2023 $57.50 call on Intel, a long January 2025 $45 call on Intel, and a short February 2024 $47 call on Intel. The Motley Fool has a disclosure policy.
