Intel launches new AI chips as takeover rumors swirl

Intel (INTC) revealed a pair of artificial intelligence chips on Tuesday as it seeks to improve its data center business and steal market share from rivals AMD (AMD) and Nvidia (NVDA). The new chips, the Xeon 6 CPU and Gaudi 3 AI accelerator, promise improved performance and power efficiency and come at a time when Intel is trying to prove it has what it takes to be a major player in the AI space.

The announcement follows a Wall Street Journal report that Qualcomm (QCOM) is looking into a potential takeover of Intel to bolster its own chip business. Bloomberg, meanwhile, reported that Apollo Global Management is interested in making a multibillion-dollar investment in the chipmaker that would back Intel CEO Pat Gelsinger’s massive turnaround plan. (Disclosure: Yahoo Finance is owned by Apollo Global Management.)

Intel says the new Xeon 6 chip offers P-cores, or performance cores, and says it features twice the performance of its predecessor. The chip, according to the company, is built for AI and high-performance compute scenarios including edge and cloud systems.

The Gaudi 3 processor, on the other hand, is purpose-built for generative AI applications and will compete directly with Nvidia’s H100 and AMD’s MI300X line of chips. Intel says IBM (IBM) is using its Gaudi 3 accelerators as part of its IBM Cloud with the goal of offering a lower overall total cost of ownership.

“Demand for AI is leading to a massive transformation in the data center, and the industry is asking for choice in hardware, software, and developer tools,” Justin Hotard, Intel’s executive vice president and general manager of its Data Center Artificial Intelligence Group, said in a statement.

“With our launch of Xeon 6 with P-cores and Gaudi 3 AI accelerators, Intel is enabling an open ecosystem that allows our customers to implement all of their workloads with greater performance, efficiency, and security.”

Intel was also quick to point out that 73% of GPU-accelerated servers, servers designed to power AI applications, use Xeon chips as the host CPUs they need to function properly. But Intel’s chips aren’t the hot tickets they once were. Companies instead are trying to get their hands on Nvidia’s line of AI chips, sending that company’s stock price soaring.

Nvidia’s stock price is up a staggering 142% year to date, while Intel shares have fallen a whopping 52%. AMD shares are up 12% in the same time period.

During its latest quarterly earnings report in August, Intel reported worse-than-anticipated revenue and earnings per share and provided a disappointing outlook for its current quarter. The company also said it would cut 15% of its workforce and suspended its dividend payments.

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Gelsinger is attempting to return Intel to its former glory by pushing its teams to build more advanced chips for the data center and consumer PCs while simultaneously building out its manufacturing capabilities.

Intel hopes to dramatically expand its chip fabs, the facilities where it produces chips, both in the US and abroad. But the company announced last week that it will put construction of planned plants in Europe on hold and that it won’t start up its advanced packaging plant in Malaysia until demand for chips picks up.

Intel offered some good news last week as well, saying that it will build custom chips for Amazon (AMZN), joining Microsoft (MSFT) as another marquee client for the company’s nascent third-party chip manufacturing business.

The firm also said it is separating its foundry segment from its design business to provide a clearer separation between the two entities, giving potential customers greater peace of mind that Intel’s design team wouldn’t have access to their own chip designs.

But Intel’s struggles amid the turnaround have made it a takeover target for the likes of Qualcomm, which could use the company to significantly expand its chip business into the data center and PC businesses.

Qualcomm relies heavily on its smartphone segment. But smartphone sales have slowed over the years as customers have begun holding on to their handsets longer, leading Qualcomm to look for new growth opportunities.

One such opportunity includes building laptop chips meant to rival Intel’s own line of processors. It will, however, take a good deal of time for Qualcomm to chip away at Intel’s PC market share if it manages to do so at all.

Email Daniel Howley at dhowley@yahoofinance.com. Follow him on Twitter at @DanielHowley.

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