intel's ai chip pullback shakes up ai processor market
Santa Clara, Monday, 3 February 2025.
Intel’s decision to scale back its AI chip ambitions might shake up the AI processor market. The company initially aimed to tap into the growing demand for AI accelerators by acquiring Habana Labs in 2019. Despite this strategic move, Intel struggled to achieve its sales targets, falling short of the $500 million goal for AI accelerators in 2024. Meanwhile, NVIDIA generated tens of billions in quarterly AI chip revenue. The Gaudi family of AI chips faced setbacks due to software compatibility issues and architectural differences. Recently, Intel announced that Falcon Shores, previously expected to be a commercial product, will now serve as an internal test chip. The company plans to shift its focus to broader AI solutions integrated with Xeon CPUs. This strategic pivot opens new opportunities for NVIDIA, potentially influencing its positioning and stock performance. Intel’s move demonstrates a significant shake-up in the competition for AI processor dominance.
Market dynamics shift
Intel’s strategic retreat from dedicated AI chip development marks a significant shift in market dynamics. The company’s decision to scale back arrives after missing its 2024 AI accelerator sales target of $500 million [1]. This development particularly strengthens NVIDIA’s position, which has been generating tens of billions in quarterly AI chip revenue [1]. The contrast in performance highlights the growing disparity between the two companies in the AI processor market [GPT].
Technical challenges and strategic pivot
The Gaudi AI chip family, acquired through Habana Labs in 2019, encountered significant hurdles with software compatibility and architectural differences compared to mainstream GPUs [1]. On January 30, 2025, Intel announced that Falcon Shores would be repurposed as an internal test chip instead of its planned commercial release [1]. The company’s new direction focuses on Jaguar Shores, which aims to provide integrated AI solutions with Xeon CPUs, with a launch planned for 2026 [1].
Competitive landscape evolution
While Intel redirects its efforts, competitor AMD projects approximately $5 billion in AI chip sales for 2024 [1]. Intel’s interim co-CEO Michelle Holthaus explained the shift, stating ‘what customers really want is that full-scale rack solution’ [1]. The company continues to maintain some AI presence, as evidenced by its recent optimization of Gaudi 2D AI accelerators for DeepSeek models [3], though this appears to be part of a transitional phase [GPT].