March 30, 2023

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Nvidia’s results show its increasing lead in the AI ​​chip race

Feb. 23 (Reuters) – As the artificial intelligence boom takes off, Nvidia Corp. (NVDA.O) is poised to emerge as the biggest — though not the only — winner among chipmakers after years of focusing on the technology has taken it off. A resource for technology companies.

Artificial intelligence has emerged as a bright spot for investments in the tech industry, whose slow growth has led to widespread layoffs and trimmed experimental bets.

The increase in interest helped Nvidia report better-than-expected quarterly earnings on Wednesday and forecast higher-than-Wall Street sales forecasts, in stark contrast to the expected loss and cut in dividends from rival Intel Corp (INTC.O).

Nvidia’s market valuation pales in comparison to those of Intel and AMD

Nvidia shares rose about 14% to $236.70 Thursday. They’ve jumped more than 60% since the turn of the year, nearly three times the gains in the Philadelphia Semiconductor Index (.SOX).

The company got its start in the graphics chip business for computers by helping video games look more realistic, and then rode the cryptocurrency wave as its chips were used for mining. Now, the next batch of generative AI is coming.

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Nvidia’s rally on Thursday boosted its market capitalization by more than $70 billion. That brings it to more than $580 billion, about five times that of Intel. It is the seventh largest publicly listed US company.

The key to the company’s success is that it controls about 80% of the market for graphics processing units (GPUs), which are specialized chips that provide the kind of computing power required for services like Microsoft-backed (MSFT.O) OpenAI. The famous ChatGPT chatbot.

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Specialized chips

GPUs are designed to handle a specific type of math involved in AI computing with great efficiency, while general Intel CPUs (Central Processing Units) can handle a wider range of computing tasks with less efficiency.

Artificial intelligence is dominating the tech industry, and according to research firm Gartner, the share of specialty chips like graphics processing units used in data centers is expected to rise to more than 15% by 2026 from less than 3% in 2020.

Advanced Micro Devices (AMD.O), whose shares also rose after Nvidia’s earnings on Wednesday, is the second largest player in the GPU industry, with a market share of nearly 20%.

“The two companies leading the AI ​​revolution on the hardware and processing side are Nvidia and AMD, and in our opinion, these two companies are way ahead of everyone else,” said Piper Sandler analyst Harsh Kumar.

Lisa Su-led AMD has made significant investments in artificial intelligence in recent years, including a series of chips designed to compete with Nvidia’s fastest offering. Intel owns less than 1% of the space.

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“The enthusiasm around ChatGPT and the potential use case it opens up likely represents an inflection point in AI adoption,” said Lei Qiu, technology fund portfolio manager at AllianceBernstein, which owns a 0.54% stake in Nvidia.

“While it’s hard to say how big AI is today as a percentage of (Nvidia’s) revenue, it has the potential to grow exponentially as big tech companies race to develop similar types of AI applications,” said Qiu.

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Nvidia’s strength in the AI ​​industry has also caught the attention of venture capitalists and start-ups, who are investing billions of dollars and promising improvements such as cutting electricity consumption.

None of them have made a huge impact yet in Nvidia’s business.

Intel is no longer inside

All of this is bad news for Intel, which is also shedding CPU market share to AMD in the data center and PC industries it once dominated. The company now risks losing out on the next growth phase of the industry.

It has made efforts in recent months to increase the focus on GPUs, including a move in December to split the graphics-chip unit into two divisions: one focused on PCs and one focused on data center and AI.

However, analysts say the company has a long way to go before Intel can make a dent in the market.

“Intel has more designs that it has built to try and penetrate the (artificial intelligence) market … but so far it has seen a disappointing amount of momentum despite the abundance of solutions,” said Matthew Bryson, an analyst with Wedbush Securities.

Additional reporting by Shafi Mehta in Bengaluru and Stephen Nelis in San Francisco; Editing by Aditya Soni and Anil D’Silva

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