With Intel (NASDAQ:INTC) poised to become one-half of a chip-making duopoly and the company also well-positioned to get a gigantic boost from the continued, rapid proliferation of artificial intelligence, INTC stock looks very attractive for long-term investors.
More specifically, Intel recently revealed that one of the world’s largest tech firms had agreed to use INTC to manufacture its chips. Additionally, the firm looks well-positioned to make a similar deal with one of the world’s largest, most famous semiconductor firms. And since duopolies are nearly always extremely lucrative for the firms that participate in them, Intel’s financial results should get a huge boost once it becomes one-half of a global chip-making duopoly.
Meanwhile, the firm’s strong AI chips for servers, along with its chips for AI PCs and AI development, leave it well-positioned o thrive from the AI Revolution.
Intel Is on the Way to Participating in a Chip-Making Duopoly
As of March 2023, Taiwan Semi (NYSE:TSM) had produced more than 90% of the “advanced” chips used globally. But Intel is in the process of turning TSM’s monopoly into a duopoly.
Earlier this month, Intel disclosed that it would manufacture chips for Microsoft (NASDAQ:MSFT) within the framework of an arrangement that will generate $15 billion of revenue for Intel. Of course, MSFT is one of the world’s largest tech companies overall and owns the second-largest cloud infrastructure developer Azure. As a result of Microsoft’s elite status, its decision to have Intel buy its chips is likely to spur many other major firms to make the same move.
Meanwhile, Nvidia (NASDAQ:NVDA), the leading designer of AI chips has decided to buy “advanced (chip) packaging” from Intel, starting next quarter. Also noteworthy is that Nvidia’s CEO, Jensen Huang, has said that tests indicate that Intel’s chip-manufacturing processes are strong, and the CEO has stated that his firm is looking to hire more firms to manufacture its hardware. Also notably, Huang openly stated that “we’re open to manufacturing with Intel.”
Given the latter points, I think it’s a matter of time before Nvidia starts paying Intel large amounts of money to make its chips. And in light of Nvidia’s status as the world’s largest maker of AI chips, I expect many more chip designers to follow Nvidia’s lead. This is great news for INTC stock.
Intel Is Well-Positioned to Benefit Tremendously From the AI Revolution
Intel’s server-chip business is already getting a big boost from the AI Boom, as the average selling prices of its Xeon server chips reached record levels last quarter.
Moreover, the firm’s new Xeon chips, unveiled late last year, include “AI acceleration in every core, bringing leaps in AI and overall performance and lowering total cost of ownership,” the chip maker noted. Intel added that “Xeon is the only mainstream data center processor with built-in AI acceleration, with the new 5th Gen Xeon delivering up to 42% higher inference and fine-tuning” than its predecessor. The firm reports that changes made in the new version of Xeon allow computers to carry out their tasks more easily and quickly.
In the category of chips that will enable PCs to directly utilize AI, instead of relying on data centers to provide AI capabilities, Intel has launched Core Ultra. The chips will enable PCs to host “several hundred AI-boosted applications,” and Core Ultra uses 2.5 times less power than Intel’s previous, equivalent offerings. Also importantly, the chips will be integrated into 230 computer models this year, showing that computer makers are enthusiastic about the product.
Finally, as I’ve noted in past columns, the backlog of Intel’s Gaudi chips, which are used to create AI, had exceeded $2 billion in January, showing that the demand for these semiconductors is extremely strong. This will be huge for INTC stock.
On the date of publication, Larry Ramer held a long position in INTC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
