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Shares of Intel (INTC) Thursday dropped more than -5% on concern the microchips it makes are ill-suited for the needs of artificial intelligence (AI) applications. Intel retreated Thursday on concern the AI frenzy may prompt companies to shift their data center budgets away from central processing chips that Intel makes toward graphics processing chips that Nvidia (NVDA) makes. Just two years ago, Intel was the world’s biggest chipmaker.
On Thursday, Nvidia surged more than +24% to a record high after it said booming demand for its chips to power AI applications would boost its sales this quarter to about $11 billion, far above the consensus of $7.18 billion. In addition, Nvidia CEO Huang said, “We’re seeing incredible orders to retool the world’s data centers,” and he predicts that a trillion dollars of data center infrastructure will be upgraded to handle the accelerated computing needed to handle AI applications.
Shares of Nvidia are up +160% this year, while Intel is up only +3.7%. Intel’s sales are at risk, and the company may further lose relevance, if technology companies rush to add AI computing power by shifting spending to the type of chips made by Nvidia and away from their data center processing chips made by Intel, the company’s most profitable revenue stream.
Nvidia dominates the market for graphics chips and has adapted the key attribute of that chip, parallel processing, for increasing use in training and running AI software. Intel has tried for years to break into the graphics chips market with limited success. Advanced Micro Devices (AMD), the second biggest maker of graphics processing units, has just begun to offer products optimized for data center computing. While Intel and other chipmakers such as Qualcomm (QCOM) have talked about their ambitions in AI processing, investors have yet to see any details on new products.
Some analysts are concerned Intel is falling behind in the race to be relevant in AI. 50 Park Investments said, “The fact that Intel hasn’t made any moves in this space is really to their detriment. By the time they jump on the bandwagon, they may be too late, and if they don’t, they could get left behind. AI is taking the world by storm with applications we wouldn’t have expected, and this could impact all areas of the chip space.”
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
