(Updated - October 24, 2023 4:37 AM EDT)
NVIDIA (NASDAQ:NVDA), known for its dominance in AI computing chips, is now coming after Intel's (NASDAQ:INTC) personal computer domain.
NVIDIA is in the early stages of crafting CPUs compatible with Microsoft's (NASDAQ:MSFT) Windows, leveraging Arm Holdings (NASDAQ:ARM) technology, according to a Reuters report, which cited people familiar with the matter.
Intel shares closed down 3.1% on Monday on the report and are down a further 1% in pre-market Tuesday.
"INTC has been a share loser in the PC space over the years, largely due to Apple (NASDAQ:AAPL) booting the company from the Macs and instead designing their own M1 and M2 silicon chips, while AMD has been a more formidable #2 CPU player in both the data center and PC markets," CFRA analysts said.
The new development aligns with Microsoft's strategy to support companies in producing Arm-based chips for Windows PCs, in part to compete with Apple's (AAPL) growing market share from its proprietary Arm-based Mac chips.
"We are not surprised by MSFT’s efforts to expand the number of vendors providing Arm-based Windows offerings, and we highlight that Arm has long had aspirations to penetrate the PC CPU market," Deutsche Bank (ETR:DBKGn) analysts wrote in a note.
Similarly, Advanced Micro Devices (NASDAQ:AMD) is exploring Arm technology for PCs, with both NVIDIA and AMD potentially releasing these chips by 2025. They'd be in the company of Qualcomm (NASDAQ:QCOM), an Arm-based chip producer for laptops since 2016.
The efforts of NVIDIA, AMD, and Qualcomm have the potential to disrupt the PC market, which has been long dominated by Intel, especially with growing challenges from Apple.
The analysts say the new development is "further indicative of competitive intensity in the processing space continuing to rise, but expect any meaningful shifts further away from x86 to still be several years out, should they ever occur."
Apple's custom Mac chips, with their energy efficiency and speedy performance, are challenging Intel's PC industry lead. Recognizing Apple's success, Microsoft aims for comparable efficiency. Initially, Microsoft selected Qualcomm to develop Windows-compatible chips, offering an exclusivity deal until 2024. According to the sources, has encouraged others to enter the market once that exclusivity deal expires.
Microsoft is urging chip manufacturers to incorporate sophisticated AI functionalities into their CPUs. They foresee AI-driven software, like Copilot, becoming integral to the Windows experience. For this vision, upcoming chips from Nvidia (NASDAQ:NVDA), AMD, and others must allocate sufficient on-chip resources.
However, the success of Microsoft and these chip companies in this venture is uncertain. Developers have spent decades and invested massive funds in crafting Windows code for the x86 computing architecture, which is owned by Intel but also licensed to AMD. Codes tailored for x86 won't directly fit Arm-based configurations, making the shift potentially problematic.
"We believe the read-across would be positive for Nvidia (i.e. share gains in PC CPUs from a zero base) and Arm (i.e. growth in royalty revenue beyond its current exposure via Apple), negative for Intel (i.e. potential share loss in PC CPUs from a base of ~72% in 2022, per Mercury, potentially offset by any upside in its foundry business), and mixed for AMD (i.e. share gains in Arm-based PC CPUs offset by potential share loss in x86-based PC CPUs)," Goldman Sachs (NYSE:GS) analysts added.