Intel declined to partner with OpenAI and missed the AI chip opportunity, falling behind specialized competitors like Nvidia.

About seven years ago, Intel had the opportunity to invest in OpenAI when the startup was a fledgling non-profit research organization. Over several months in 2017 and 2018, executives from both companies discussed various options, including Intel buying a 15 per cent stake for $1 billion in cash, and potentially acquiring an additional 15 per cent stake if it made hardware for the startup at cost price. OpenAI was interested in the investment because it would have reduced its reliance on Nvidia's chips and allowed the startup to build its own infrastructure. However, Intel ultimately decided against the deal, partly because then-CEO Bob Swan did not think generative AI models would make it to market in the near future and thus repay the chipmaker's investment. The deal also fell through because Intel's data center unit did not want to make products at cost. OpenAI went on to launch the groundbreaking ChatGPT in 2022 and is now reportedly valued at about $80 billion.

Intel's decision represents one of a series of strategic misfortunes that have seen the company stumble in the era of AI. Last week, Intel's second-quarter earnings triggered a stock price decline of more than a quarter of its value in its worst trading day since 1974. For the first time in 30 years, the tech company is worth less than $100 billion. Intel is now dwarfed by $2.6 trillion rival Nvidia, which has pivoted from video game graphics to AI chips needed to build, train and operate large generative AI systems like OpenAI's GPT4 and Meta Platforms' Llama models. Intel has also fallen behind the $218 billion AMD. When asked about its AI progress, Intel's CEO Pat Gelsinger said the company's third-generation Gaudi AI chip, which it aims to launch in the third quarter of this year, would outperform rivals. Gelsinger said the company had "20-plus" customers for the second and third generation of Gaudi and that its next-generation Falcon Shores AI chip would launch in late 2025.

For more than two decades, Intel believed the CPU, or central processing unit, like the ones that power desktop and laptop computers, could more effectively handle the processing tasks required to build and run AI models. Intel engineers viewed the graphics processing unit (GPU) video gaming chip architecture, used by rivals Nvidia and Advanced Micro Devices, as comparatively "ugly." However, by the mid 2000s, researchers had discovered that the gaming chips were far more efficient than CPUs at handling the intensive data crunching necessary to build and train large AI models. Because GPUs are designed for game graphics, they can perform an enormous number of calculations in parallel. Nvidia's engineers have spent years modifying the GPU architecture to tune them for AI uses and built the software necessary to harness the capabilities.

Since 2010, Intel has made at least four attempts to produce a viable AI chip, including acquiring two startups and at least two major homegrown efforts. In 2016, Intel CEO Brian Krzanich sought to buy its way into the AI business by acquiring Nervana Systems for $408 million, attracted to technology similar to Google's tensor processing unit. None of these efforts have made a dent against Nvidia or AMD in the rapidly expanding and lucrative market. According to Dylan Patel, founder of semiconductor research group SemiAnalysis, "Intel failed in AI because they didn't present a cohesive product strategy to their customers." Intel's entire data center business is expected to generate sales of $13.89 billion this year—which includes AI chips but many other designs—while analysts expect Nvidia to generate data center revenue of $105.9 billion. As Lou Miscioscia, analyst at Japanese investment bank Daiwa, observed: "When AI hit … Intel just didn't have the right processor at the right time."