Today, Nvidia is the unrivalled AI chip king and one of the most valuable corporations in the world, while Intel, once the semiconductor superpower, is reeling and getting no lift from the AI gold rush.
In 2005, artificial intelligence (AI) was not yet the driving force in technology that it is today. However, Intel, a leading name in semiconductor chips for personal computers, found itself at a crossroads that could have significantly altered its future trajectory in the AI landscape. Intel’s then-CEO, Paul Otellini, proposed acquiring Nvidia, a rising Silicon Valley company known primarily for its graphics chips. The potential acquisition price? A staggering $20 billion, a hefty investment that Intel’s board ultimately declined, shaping the future of the AI industry and leaving Nvidia to become the dominant player it is today.
Intel had some forward-thinking executives who recognized that the design of Nvidia’s graphics chips had potential for data centers, which would soon become essential for AI applications. Yet, Intel’s board was skeptical. The company had a history of struggling to integrate acquired businesses, and acquiring Nvidia would have been Intel’s largest acquisition to date. Due to these doubts, the board decided against the deal, and Otellini, who passed away in 2017, abandoned the proposal. This decision, described as a “fateful moment” by a person familiar with the meeting, has had lasting consequences.
Today, Nvidia reigns supreme in the AI chip industry and has grown into one of the most valuable corporations worldwide. Its market value, which used to be a fraction of Intel’s, has now soared to over $3 trillion. Intel, once the titan of the semiconductor industry, is grappling with declining revenues and has been excluded from the AI boom that has propelled Nvidia to unprecedented heights. With Intel’s valuation slipping below $100 billion, some tech companies and investment banks now view the once-mighty Intel as a potential acquisition target.
The Struggles of Intel’s New Leadership
Intel’s current CEO, Patrick Gelsinger, took the helm in 2021 with a vision of reclaiming Intel’s position as a leader in chip manufacturing. Despite this, the company remains in need of innovative products to regain its footing in the highly competitive chip industry, where revenue fell more than 30% from 2021 to 2023. While Gelsinger’s emphasis has been on revamping Intel’s manufacturing, the lack of a strong presence in AI has been a significant setback.
Professor Robert Burgelman of Stanford Graduate School of Business noted that Intel’s focus on manufacturing has come at the expense of advancements in AI, adding, “Pat Gelsinger is very much focused on the manufacturing side, but they missed AI, and that has been catching up to them now.”
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Intel’s journey away from AI dominance can be traced back to missed opportunities and strategic missteps, along with a corporate culture that prioritized maintaining its PC chip stronghold over pursuing new markets. Interviews with former Intel managers, board members, and industry analysts highlight how these factors have collectively hindered the company’s progress in adapting to the AI revolution.
A Corporate Culture That Hindered Innovation
Intel’s culture, rooted in decades of high profits from its x86 PC chip architecture, was known for its aggressive focus on maintaining its position in the PC and data center markets. The company’s executives half-jokingly referred to it as the “largest single-cell organism on the planet,” underscoring its inward-looking, insular nature. This mindset played a significant role in Intel’s failure to lead in AI chips.
Intel’s success in the PC industry, paired with lucrative data center partnerships, made the company reluctant to take risks that could disrupt its profitable core business. This emphasis on protecting the x86 architecture—a proprietary chip design critical to Intel’s success—resulted in missed opportunities in other areas, including AI.
James Plummer, a Stanford University professor and former Intel director, reflected on the company’s approach, saying, “That technology was Intel’s crown jewel – proprietary and very profitable – and they would do anything in their power to maintain that.” While profitable, this focus ultimately prevented Intel from innovating in areas that are now critical to the industry.
The Nvidia Opportunity and Intel’s Project Larrabee
In 2005, Nvidia was widely considered a niche player, specializing in graphics chips primarily used in gaming devices. However, Nvidia had already started exploring other high-computation fields, such as oil and gas exploration, where its chips were well-suited for intensive data processing.
Intel’s chips were built to perform sequential calculations efficiently, while Nvidia’s chips excelled by breaking tasks into smaller parts and executing them across hundreds or even thousands of processors. This parallel processing approach would later become essential for AI applications.
After Intel declined to acquire Nvidia, it turned its attention to an internal project called Larrabee, which was intended to position Intel as a leader in graphics processing. Gelsinger, who joined Intel in 1979 and worked his way up to senior executive, led the ambitious project. In 2008, at a conference in Shanghai, he confidently predicted that traditional graphics architectures would soon become obsolete and that Intel’s Larrabee would be the solution.
However, Larrabee struggled to meet performance expectations and fell behind schedule. The project, which cost Intel hundreds of millions of dollars over four years, ultimately failed. In 2009, Intel pulled the plug, and shortly after, Gelsinger left Intel to join EMC, a company specializing in data storage.
Years later, in a 2019 interview with the Computer History Museum, Gelsinger reflected on the lost potential of Larrabee, suggesting that the project had been on the right path but needed more corporate backing. He speculated that had Intel continued with the project, Nvidia’s success might not have reached the same level.
Despite these reflections, Gelsinger admitted that technology trends are unpredictable, and Intel’s decisions shaped a different outcome for the company and the industry.
The AI Boom and Intel’s Path Forward
As Nvidia capitalized on its graphics processing expertise, evolving its chips for AI applications, it rode the AI wave to a dominant position in the market. Meanwhile, Intel, focused on maintaining its x86 dominance, missed out on the explosion of AI-driven demand in data centers and advanced computing. This shift has left Intel struggling to stay competitive in a rapidly changing semiconductor landscape.
In recent years, Intel has made moves to catch up, acquiring AI and graphics-focused companies to strengthen its portfolio. However, these efforts have yet to significantly impact the company’s financial performance or its position in the AI chip market.
In hindsight, Intel’s missed opportunity with Nvidia remains a pivotal moment. Had Intel acquired Nvidia and developed the AI capabilities Nvidia eventually pursued, the AI chip landscape today might look very different. For Intel, the decision not to pursue Nvidia reflects a broader challenge—balancing the drive to innovate with the commitment to existing technologies.
As Intel works to navigate this challenging period, its experience serves as a reminder of how difficult it can be for large, established companies to pivot in the face of disruptive change. Whether Intel can regain its footing in the AI era remains to be seen, but the missed opportunity with Nvidia will likely continue to echo throughout its corporate history.
