Nvidia earnings scare away AMD, Intel investors as legacy chipmakers lose ground in AI

Investor confidence in AMD and Intel took a hit in response to Nvidia's latest earnings report, which showcased the company's continued dominance in the realm of artificial intelligence (AI). As Nvidia's revenue for the current quarter is projected to soar by a remarkable 170% to around $16 billion, shares of both AMD and Intel plunged, falling by 7% and 4% respectively after Nvidia's fiscal second-quarter earnings announcement.

Nvidia's impressive performance underscores its unrivaled position in the market for graphics processing units (GPUs), which are integral for AI-related tasks. The report revealed that Nvidia's executives are confident about sustained high demand through the upcoming year, prompting discussions among investors about the viability of any substantial competition in the production of GPUs crucial for the development and operation of large-scale AI models.

This surge in Nvidia's success also signifies a seismic shift in the landscape of data center chips. The once-dominant focus on central processors (CPUs) crafted by Intel and AMD is rapidly giving way to the demand for AI-accelerating GPUs, the very products that major cloud companies like Alphabet, Amazon, Meta, and Microsoft are rapidly adopting.

In contrast, AMD and Intel are grappling to keep up. Intel's CEO, Pat Gelsinger, admitted to persisting weaknesses across all business segments throughout the year, highlighting how cloud companies are diverting their attention towards graphics processors tailored for AI, at the expense of Intel's central processors. Intel's response to this shift involves the delayed release of its next high-end data center GPU, Falcon Shores, now expected in 2025 after the cancellation of its 2023 chip.

AMD is also contending with timing challenges. Despite unveiling its flagship AI chip, the MI300, earlier this year, the chip is still in limited "sampling" distribution, with broader market availability only anticipated for the next year. As a result, analysts anticipate that Nvidia's substantial lead will persist until AMD can significantly scale up its AI accelerator shipments, projected to commence in early 2024.

While both AMD and Intel are actively working to develop AI technology and compete in this space, they face an uphill battle against Nvidia's established market presence. The concern is that by the time they manage to bring their products to the market in substantial quantities, many potential clients might have already adopted Nvidia's solutions.

As a result, the allure of AI-related spending for companies like AMD, Marvel, and Intel, as pointed out by Morgan Stanley analyst Joseph Moore, could be offset by the reality of Nvidia's firm grip on the market. As Nvidia continues to advance, legacy chipmakers may find themselves struggling to carve out a significant share of the AI market, raising questions about their long-term prospects in this rapidly evolving industry.