Intel Just Landed a Major AI Chip Customer

Chip giant Intel (NASDAQ: INTC) has lagged behind the market leader Nvidia and rival Advanced micro devices in the AI ​​accelerator market. While Nvidia generates more than $26 billion in data center revenue each quarter and AMD is on track to sell $4.5 billion in AI accelerators this year, Intel finds itself in a distant third place.

Intel’s new Gaudi 3 AI accelerator, launched this year, is powerful and cost-effective. But winning over customers has proven challenging. Intel has said it expects to generate just $500 million in revenue from Gaudi 3 sales in 2024, a pittance compared to Nvidia and AMD.

Intel partners with IBM

While 2024 will be a tough year for Intel’s AI chip business, 2025 looks set to be a brighter year. Last week, Intel and IBM (NYSE: IBM) announced a partnership that will place Intel’s Gaudi 3 chips in IBM’s cloud data centers. IBM will be the first cloud service provider to adopt Gaudi 3 when the partnership comes to fruition 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 carved out a niche in the AI ​​market by targeting enterprise clients and pairing its Watsonx platform with its massive consulting business. The company has booked more than $2 billion in business related to generative AI to date.

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 they are also expensive. Intel has made a point of emphasizing the affordable nature of its Gaudi 3 chips, taking the unusual step earlier this year of publishing pricing for system vendors. The company claims that an eight-chip AI kit with Gaudi 3 chips costs just two-thirds as much as comparable competing platforms.

Notably, Gaudi 3 will be available for hybrid and on-premises 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 victory

To say that Intel is going through a rough patch would be an understatement. The company’s turnaround, focused on its semiconductor manufacturing ambitions, is faltering. Intel announced extensive layoffs alongside its disappointing second-quarter earnings report, and the company is likely to sell assets and pull back from non-core businesses as it works to shore up its finances.

The IBM partnership is much-needed good news, and it’s a sign that Intel’s Gaudi 3 AI chips are an attractive proposition for cloud service providers. There was no discussion of the scale of Gaudi 3’s deployment, but getting its AI chips into cloud data centers is a big win for Intel.

While Intel’s AI chip division isn’t expected to make any major changes this year, momentum is finally starting to gather 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.

Intel Just Landed a Major AI Chip Customer was originally published by The Motley Fool