Intel just signed up a big AI chip customer

Giant face Intel (INTC -8.80%) lagged behind the market leader Nvidia and rival Advanced microdevices in the AI ​​accelerator market. As Nvidia makes more than $26 billion in data center revenue each quarter and AMD is on track to sell $4.5 billion worth of AI accelerators this year, Intel is on a third distant place.

The new Intel Gaudi 3 AI accelerator, which was released this year, is powerful and cost-effective. However, gaining customers is proving to be a challenge. Intel said it expects to generate just $500 million in revenue from Gaudi 3 sales in 2024, a drag compared to Nvidia and AMD.

Intel teams up with IBM

While 2024 will be a tough year for Intel’s AI chip business, 2025 is shaping up to look better. Last week, Intel and IBM (IBM -0.42%) announced a collaboration that will introduce Intel’s Gaudi 3 chips into IBM’s cloud data centers. IBM will be the first cloud service provider to adopt Gaudi 3 when the collaboration 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 for itself in the artificial intelligence market by providing enterprise clients and combining the Watsonx platform with its vast consulting business. The company has so far booked more than $2 billion worth of business related to generative AI.

The plan is to use Gaudi 3 to lower the total cost of ownership for IBM customers. AI chips from market leader Nvidia have become the gold standard, but they’re also expensive. Intel has made a point to emphasize the affordable nature of its Gaudi 3 chips, taking the unusual step earlier this year of publishing pricing to system vendors. The company claims that an eight-chip Gaudi 3 AI kit is only two-thirds the cost of comparable competitive platforms.

In particular, Gaudi 3 will be available for hybrid and on-premise 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 Intel is going through a tough time would be an understatement. The company’s turnaround, centered on its semiconductor manufacturing ambitions, is faltering. Intel announced widespread layoffs along with its disappointing second-quarter report, and the company is likely to sell assets and exit non-core businesses as it works to shore up its finances.

The collaboration with IBM is much-needed good news and a sign that Intel’s Gaudi 3 AI chips are an attractive proposition for cloud service providers. There was no word on the extent 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 business won’t move the needle this year, momentum is finally starting to build for the company’s Gaudi 3 accelerators.