Intel Stock Gains as IBM Cloud Set to Offer its New Cost-Effective AI Chips

Intel Corporation (NASDAQ: INTC) announced a significant partnership with IBM Cloud on August 29, 2024, marking a crucial step in its efforts to compete in the AI chip market.

The collaboration will see IBM Cloud offering Intel’s Gaudi 3 AI accelerator chips to customers beginning in early 2025, available for both hybrid and on-premise environments. This move comes as Intel faces stiff competition from industry leaders Nvidia (NASDAQ: NVDA) and AMD (NASDAQ: AMD), with the company aiming to carve out a larger share of the rapidly growing AI computing sector.

Gaudi 3 and Intel’s Strategic Move in the AI Chip Market

The Gaudi 3, unveiled by Intel in December 2023, represents the company’s latest foray into AI acceleration technology.

Designed to compete directly with offerings from Nvidia and AMD, the Gaudi 3 is part of a series Intel acquired through its $2 billion purchase of Habana Labs in 2019. The chip boasts a new form of Ethernet connectivity, positioning it as a competitor to Nvidia’s InfiniBand technology, and is paired with Intel’s Xeon 6 processor series.

IBM Cloud’s adoption of the Gaudi 3 marks Intel’s first major cloud customer for this technology. The partnership aims to create new AI capabilities and meet the growing demand for affordable, secure AI computing solutions.

Early benchmarks suggest that the Gaudi 3 delivers high-performance relative to its cost, which could prove crucial in attracting cost-conscious customers in the competitive AI market.

The partnership with IBM Cloud represents a significant opportunity for Intel to gain traction in the AI chip sector. It showcases Gaudi 3 technology and offers IBM Cloud customers access to a new AI acceleration option, potentially increasing competition in the cloud AI market.

While Intel CTO Greg Lavender has optimistically stated that the company could take second place in the AI chip market behind Nvidia, significant hurdles remain in attracting customers away from established relationships with competitors.

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Intel Stock Gains Amid AI Push

As Intel makes strides in the AI chip market, its stock (NASDAQ: INTC) shows mixed signals. As of 12:10 PM EDT on the day of the IBM Cloud announcement, Intel’s stock was trading at $20.56, up 4.82% on the day.

However, Intel’s stock performance over longer periods tells a different story. The company has significantly underperformed the S&P 500 index across various timeframes.

Year-to-date, Intel’s stock has declined by 58.55%, compared to the S&P 500’s 18.29% gain. Over one, three, and five-year periods, the stock has consistently lagged behind the broader market, with a five-year return of -48.83% against the S&P 500’s 95.38% gain.

Despite these challenges, Intel continues to attract investor interest. The stock’s high PE ratio of 81.71 suggests that investors are willing to pay a premium for each dollar of earnings, possibly betting on the company’s future potential in the AI market.

Additionally, Intel maintains a dividend program, with a forward yield of 2.43%, which may appeal to income-focused investors.

Disclaimer: The author does not hold or have a position in any securities discussed in the article.