The News: Intel recently released Q2 earnings and during the recent earnings release cycle many have looked to draw parallels between previous inflection points and super cycles in technology adoption. For the recent Intel earnings release look here.
The Future of NVIDIA: A Comparison with Intel and Cisco’s Legacy
Analyst Take: In a recent post on X Daniel Newman, CEO of The Futurum Group sketched out some comments on how he sees the NVIDIA positioning vs the likes of Intel and Cisco. We discussed it at length and here is my take.
In the ever-evolving landscape of technology, few companies have made as significant an impact as NVIDIA. Known for its dominance in the datacenter GPU market and its robust software ecosystem (CUDA), NVIDIA’s position today evokes comparisons with past tech giants such as Intel and Cisco. As we explore these comparisons, we must consider the crucial roles Intel and Cisco played during the internet boom and the PC revolution, and whether NVIDIA might follow a similar trajectory or carve out a different path.
The Rise and Influence of Intel and Cisco
Intel and Cisco were pivotal during the internet boom and the PC revolution and remain stalwarts of the industry today. Intel’s x86 architecture became the foundation for personal computing, and its CPUs powered the vast majority of PCs and servers. The company enjoyed a market share exceeding 90% at its peak, symbolizing its market dominance. Intel’s innovations in semiconductor technology not only fueled the PC revolution but also laid the groundwork for the modern data center.
Cisco, on the other hand, was the backbone of the internet build-out. Its networking equipment facilitated the rapid expansion of the internet, enabling the connectivity that defined the late 20th century. During the internet bubble, Cisco emerged as the biggest winner, its routers and switches becoming synonymous with internet infrastructure. The company’s strategic acquisitions and development of advanced networking technologies cemented its place as a leader in the field.
Both companies, however, faced challenges as the tech landscape evolved. Intel’s struggles became apparent as it began losing market share to competitors such as AMD and the rise of ARM-based processors. Despite significant investments, such as in Habana Labs and plans for the Falcon Shores GPU, Intel has struggled to maintain its leadership in datacenter AI. Similarly, Cisco, despite developing substantial ARR and software streams, has faced intense competition and has been defending its market position for over a decade. While the recent Splunk acquisition bodes well for Cisco over the medium to long term, it certainly is not the stock market darling it once was.
NVIDIA: Dominant Player or Future Struggler?
NVIDIA’s current peak in the datacenter GPU market, holding approximately 92% market share, speaks to a robust market for the company’s processors and AI accelerators. Futurum Group analysis sees the AI processor and accelerator market growing to $138 billion by 2028, representing a CAGR of 29.7% over a 2024 beeline. These numbers are up from $37.7 billion in 2023.
Much like Intel, NVIDIA’s market leadership is built on innovative hardware design. However, what truly sets NVIDIA apart is its software abstraction layer, CUDA, and its extensive developer base. The CUDA ecosystem gives NVIDIA a significant advantage, fostering innovation and widespread adoption across various industries and providing a long-term moat.
Unlike Intel and Cisco, whose market shares have eroded over time due to competition and technological shifts, NVIDIA’s position seems more secure in the short term. The company’s dominance in AI processing and general-purpose AI processors is supported by both its hardware and software capabilities. This dual advantage is crucial in an era where AI is becoming integral to numerous applications, from autonomous vehicles to large-scale data analytics.
However, it’s important to recognize that disruption and innovation in technology happen at an accelerated pace today. The same could have been said for Intel and Cisco at their respective peaks. Intel’s long-standing leadership in x86 CPUs and Cisco’s dominance in networking were once considered unassailable. Yet, both companies experienced significant challenges that reshaped their market positions.
The Competitive Landscape
Cisco’s transformation over the past decade, focusing on software and ARR, highlights the competitive pressures in the networking market. Splunk being the latest iteration of this strategy. Despite these efforts, Cisco has found itself on the defensive, navigating a more crowded and competitive market. Similarly, Intel’s market share has declined over the past six years, and it now faces the challenge of gaining traction in the datacenter AI space.
For NVIDIA, the parallels with Intel’s history are more pronounced. Intel’s peak market share in x86 CPUs was followed by a period of gradual erosion as AMD made significant inroads and ARM architectures began to disrupt the market. This decline, which took about six to seven years, serves as a cautionary tale for NVIDIA. While NVIDIA’s current dominance is supported by a strong software ecosystem, the rapid pace of innovation means that new competitors and technologies could emerge to challenge its position.
Moreover, Intel’s investment in Habana and the development of the Falcon Shores GPU indicate that the company is not standing still. Intel’s ability to rebound, much like AMD’s resurgence after its Opteron struggles, remains a possibility. The tech industry has shown that comebacks are possible, especially with the right strategic investments and innovation.
AI CapEx Is the Key Takeaway from Q2 Earnings Season
Based on reported numbers, the capital expenditure (CapEx) of Amazon, Microsoft, and Google is projected to reach around $200 billion this year. Despite AI companies generating approximately $20 billion in revenue from front-end applications such as Co-pilot, the industry has added approximately about $3 trillion of market capitalization this year. This discrepancy highlights the sector’s valuation, trading roughly at 150 times revenues, which some argue is unsustainable.
We are seeing the trend that investors often pivot to infrastructure investments when uncertainty looms over AI’s future valuations. This trend mirrors the late 1990s when uncertainty in tech led investors to prioritize infrastructure companies such as Cisco and Intel. Currently, AI infrastructure providers such as NVIDIA, AMD, and ARM have seen their revenues rise by 146%, even as their CapEx remains flat or declines slightly. In contrast, the software giants—Microsoft, Meta, Google, and Amazon—have increased their CapEx by 31% while only achieving a 19% revenue growth.
Despite slowing sales growth, such as Microsoft’s cloud division slightly declining from 31% to 29% over two quarters, the numbers remain robust and at this point are suffering from the law of large numbers. This strategic CapEx surge underscores the overall sector’s confidence in long-term AI and cloud infrastructure profitability, which we foresee for the next few quarters.
The Future of NVIDIA
Whether NVIDIA will follow a similar path to Intel and Cisco is far from certain. The company’s unique combination of hardware and software strengths positions it well in the AI era. The extensive use of CUDA by developers worldwide creates a significant barrier to entry for competitors. However, the tech industry’s history suggests that no company, regardless of its current dominance, is immune to the forces of disruption.
The diffusion of innovation is accelerating, and new technologies and market entrants can quickly change the competitive landscape. NVIDIA’s leadership in datacenter GPUs and AI processors might be challenged as the industry evolves. As we’ve seen with Intel and Cisco, maintaining market leadership requires continuous innovation and the ability to adapt to changing technological trends.
In conclusion, while NVIDIA’s current position appears robust, the company’s future will depend on its ability to sustain its hardware and software advantages in the face of ongoing innovation and competition. The experiences of Intel and Cisco serve as reminders that even the most dominant companies can face significant challenges. NVIDIA’s journey will undoubtedly be one to watch closely as the tech landscape continues to evolve. The stakes are high, and the future is anything but predictable.
Looking Ahead
We are at the crossroads in the industry similar to the Internet in the late 1990s, and Mobile in the era post 2007 with the advent of the iPhone. While it is tempting to make long-term predictions based on the data we are seeing now in the market, in reality it is too early to see how the AI landscape will mature over a 10-year time horizon. What is safe to say is that hyperscale cloud providers such as AWS, Microsoft, and Google have uniquely deep pockets when it comes to building out AI infrastructure for enterprise workloads. These providers are only really rivaled by the likes of Meta in their levels of CapEx investment in AI infrastructure.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
Other Insights from The Futurum Group:
Intel’s Q2 2024 Earnings Release: Navigating Challenges and Strategic Shifts
Cisco Announces AI Enhancements to Webex Contact Center
Author Information
Regarded as a luminary at the intersection of technology and business transformation, Steven Dickens is the Vice President and Practice Leader for Hybrid Cloud, Infrastructure, and Operations at The Futurum Group. With a distinguished track record as a Forbes contributor and a ranking among the Top 10 Analysts by ARInsights, Steven's unique vantage point enables him to chart the nexus between emergent technologies and disruptive innovation, offering unparalleled insights for global enterprises.
Steven's expertise spans a broad spectrum of technologies that drive modern enterprises. Notable among these are open source, hybrid cloud, mission-critical infrastructure, cryptocurrencies, blockchain, and FinTech innovation. His work is foundational in aligning the strategic imperatives of C-suite executives with the practical needs of end users and technology practitioners, serving as a catalyst for optimizing the return on technology investments.
Over the years, Steven has been an integral part of industry behemoths including Broadcom, Hewlett Packard Enterprise (HPE), and IBM. His exceptional ability to pioneer multi-hundred-million-dollar products and to lead global sales teams with revenues in the same echelon has consistently demonstrated his capability for high-impact leadership.
Steven serves as a thought leader in various technology consortiums. He was a founding board member and former Chairperson of the Open Mainframe Project, under the aegis of the Linux Foundation. His role as a Board Advisor continues to shape the advocacy for open source implementations of mainframe technologies.
