Game On: Intel Is Targeting Nvidia And AMD's Market Share

The graphics chip space is transitioning to a three-way battle, with Intel Corporation INTC indicating it will to plunge headlong into the market that's dominated by Advanced Micro Devices, Inc. AMD and NVIDIA Corporation NVDA.

Intel announced earlier this week it was hiring AMD's graphics business head Raja Koduri, and also indicated that it plans to go after AMD and Nvidia by developing high-end discreet graphics solutions.

The Analyst

Morgan Stanley analyst Joseph Moore explored the implications of the latest development for Intel, AMD and Nvidia.

The Rating

Morgan Stanley has an Equal-weight rating and $39 price target for shares of Intel.

The Thesis

Intel has not tasted much success despite multiple attempts to pursue discrete graphics, Moore said in a Thursday note. (See Moore's track record here.)

This is despite Intel having significant experience with integrated graphics, the analyst said.

Moore said the the appeal in Intel's move lies in the importance of graphics to both gaming and high-end computing. 

See also: Analysis: AMD's Intel Deal Lends Almost 100% Upside To The Stock

A Positive For Intel, But Doubts Remain

Morgan Stanley sees the development as positive for Intel, as its gives the company another avenue for competing with Nvidia in the parallel computing market. Given Intel's multiple priorities such as deep learning and other parallel compute markets, Morgan Stanley is skeptical as to how Intel will prioritize.

Intel has to build from scratch, while Nvidia and AMD have the advantage of iterating from their existing high-performance solutions, Moore said. 

Analyst: Intel Isn't A Significant Threat To Nvidia 

Nvidia has built barriers over time to protect its market position, Moore said. Despite locking horns with AMD, Nvidia hasn't been sufficiently challenged in the higher performance end of the market, the analyst said.

Morgan Stanley acknowledged AMD's superior positioning in the mainstream/entry level gaming space.

"Even considering Intel's potential manufacturing advantage, AMD is still likely to pose a more tangible potential threat, so Intel's presence doesn't really change much," the firm added.

AMD Could Be Impacted, Though Not In Near Term

Intel's decision to go it alone removes some of the options AMD bulls were considering, including a potential Intel-AMD partnership in this arena, Moore said of the impact of the AMD announcement. 

AMD will be impacted more than Nvidia, given that AMD is finding itself at more value/mainstream price points. That said, the impact could be years away, the analyst said. 

Price Action

Intel shares have not reacted much to the announcement, although they're up 27.38 percent in the year-to-date period. Much of the gains have been made since mid-September.

AMD and Nvidia shares fell 1.8 percent and AMD shares declined a steeper 5 percent on Thursday after Intel's announcement.

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Photo courtesy of Intel.