Developers in the realm of artificial intelligence are highly enthusiastic about Nvidia’s processors. In fact, the demand is so immense that Nvidia announced a projected 170% increase in revenue for the current quarter, amounting to approximately $16 billion. As a result, Nvidia’s stock initially rose by over 2% before stabilizing, falling short of a record close amidst a challenging day for the broader market.
However, this success comes at the expense of two main competitors. AMD, Nvidia’s primary rival in the graphics processing units (GPUs) market, is losing ground, while Intel, a chip giant, continues to miss out on the hottest trend in technology. Following Nvidia’s impressive fiscal second-quarter earnings report, AMD and Intel experienced respective stock declines of 7% and 4%.
Nvidia’s outstanding performance and optimistic predictions from executives regarding sustained high demand throughout the following year raise questions about whether the company faces any significant competition in the production of the GPUs required for building and running large AI models. Furthermore, Nvidia’s success marks a shift in the market for data center chips. The most crucial component of data center construction, previously reliant on central processors (CPUs) from Intel or AMD, now centers around AI-accelerating GPUs favored by major cloud companies.
Alphabet, Amazon, Meta, and Microsoft are notable examples of companies actively acquiring Nvidia’s next-generation processors. The profitability of these processors is evidenced by Nvidia’s adjusted gross margin increasing by 25.3 percentage points to 71.2% in the period. Deutsche Bank analyst Ross Seymore emphasizes Nvidia’s dominance, stating that Nvidia’s data center revenues are expected to surpass the combined revenues of Intel and AMD in the same sector.
According to FactSet data, Nvidia is projected to achieve $12 billion in data center sales for the current quarter. In comparison, Intel’s data center group is expected to generate $4 billion in revenue, while AMD’s division is projected to reach $1.64 billion in sales. Despite efforts to remain relevant in the AI market, both AMD and Intel face significant challenges.
Intel CEO Pat Gelsinger acknowledged the company’s “persistent weakness” across all business segments and revealed that cloud companies prioritize graphics processors for AI over Intel’s central processors. Intel’s high-end data center GPU, Falcon Shores, is scheduled for release in 2025, while its 2023 chip was canceled. AMD, on the other hand, recently acquired French AI software firm Mipsology and is developing its own software suite for AI developers called ROCm to compete with Nvidia’s CUDA offering. However, AMD faces timing challenges as its flagship AI chip, the MI300, is currently only being shipped in small quantities and will hit the market next year.
Raj Joshi, senior vice president at Moody’s Investors Services, suggests that meaningful competition for Nvidia’s high-performance GPUs will only arise once AMD starts mass shipping its new AI accelerators in early 2024. However, by then, prospective customers may have already invested in Nvidia chips, limiting AMD’s and Intel’s market share.
Analysts, including Joseph Moore from Morgan Stanley, acknowledge the potential for AI spending to drive several companies forward. However, they also recognize that companies like AMD, Marvel, and Intel may face budget constraints due to the high demand for Nvidia’s GPUs.
In conclusion, Nvidia’s dominance in the AI processor market has left AMD and Intel struggling to catch up. As cloud companies increasingly prioritize Nvidia’s GPUs, the competition faces significant challenges in gaining market share.
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