Intel's Missed Opportunity: The $20 Billion Nvidia Acquisition That Never Was

How Intel got left behind in the AI chip boom

Gift 5 articles to anyone you choose each month when you subscribe. In 2005, there was no inkling of the artificial intelligence boom that would come years later. But directors at Intel, whose chips served as electronic brains in most computers, faced a decision that might have altered how that transformative technology evolved. Paul Otellini, Intel's chief executive at the time, presented the board with a startling idea: buy Nvidia, a Silicon Valley upstart known for chips used for computer graphics. The price tag: as much as $US20 billion.

Intel's former CEO tried to buy Nvidia nearly 2 decades ago

Tech pioneer Intel (INTC+0.86%) has seemingly missed out on the artificial intelligence boom -- and part of it can reportedly be traced back to a decision not to buy the chipmaker at the center of it all almost two decades ago. Intel's former chief executive Paul Otellini wanted to buy Nvidia in 2005 when the chipmaker was mostly known for making computer graphics chips, which some executives thought had potential for data centers, The New York Times (NYT-0.24%) reported, citing unnamed people familiar with the matter. However, Intel's board did not approve of the $20 billion acquisition -- which would've been the company's most expensive yet -- and Otellini dropped the effort, according to The New York Times. Instead, the board was reportedly more interested in an in-house graphics project called Larrabee, which was led by now-chief executive Pat Gelsinger. Almost two decades later, Nvidia (NVDA+0.52%) has become the second-most valuable public company in the world and continuously exceeds Wall Street's high expectations. Intel, on the other hand, has seen its shares fall around 53% so far this year and is now worth less than $100 billion -- around 30 times less than Nvidia's $3.4 trillion market cap. In August, Intel shares fell 27% after it missed revenue expectations with its second-quarter earnings and announced layoffs. The company missed profit expectations partly due to its decision to "more quickly ramp" its Core Ultra artificial intelligence CPUs, or core processing units, that can handle AI applications, Gelsinger said on the company's earnings call. And Nvidia wasn't the only AI darling Intel missed out on. Over a decade after passing on Nvidia, Intel made another strategic miss by reportedly deciding not to buy a stake in OpenAI, which had not yet kicked off the current AI hype with the release of ChatGPT in November 2022. Former Intel chief executive Bob Swan didn't think OpenAI's generative AI models would come to market soon enough for the investment to be worth it, Reuters reported, citing unnamed people familiar with the matter. The AI startup had been interested in Intel, sources told Reuters (TRI-0.38%), so it could depend less on Nvidia and build its own infrastructure.

Intel's former CEO pushed for the chip maker to buy Nvidia for $20 billion in 2005 -- the GPU company is now worth $3.5 trillion

I don't think this so-called "Nvidia" will turn out to be much, anyway. Best left alone, I reckon. As some hockey player once said, "you miss 100% of the shots you don't take". Or in Intel's case, you miss out on buying a company that's currently sitting second on the list of most valuable companies in the world, back when it was worth relatively little. That's according to a report from the New York Times, detailing how Paul Otellini, Intel's chief executive from 2005 to 2013, presented the board with an idea to buy a little computer graphics company called Nvidia. This wasn't long after he'd taken the position, and the board apparently put up a significant amount of resistance, as (at a $20 billion value at the time), it would easily have been Intel's most expensive acquisition to date. As a result, Otellini backed away from defending the purchase. One attendee at the meeting reportedly described it as "a fateful moment", and I should think so, too. Given that Nvidia has since positioned itself at the forefront of the AI boom, and currently has a market cap estimated to be around $3.5 trillion dollars, it does strike as one of those misses you'd kick yourself for. Of course, hindsight is a wonderful thing, and other such platitudes. Still, it seems like even back in 2005, some Intel executives could already see some of the future that Nvidia might be involved in. According to its sources, the New York Times reports that some Intel execs believed that the underlying design of its graphics chips might be important for future data centers, which today would count as a massive understatement. Given some of the reveals here about Intel's corporate culture (and how it might have contributed to the almighty financial and strategic mess it currently finds itself in), it's perhaps no surprise that Intel was slow on the draw with this sort of future planning. Intel executives reportedly described the company as "the largest single-cell organism on the planet", a reference to the insular and single-minded corporate culture at the time. The focus back then was on x86, and the company's then-dominant processor designs. Former Intel chief executive Craig Barrett reportedly compared the x86 chip business to a creosote bush, in that creosote poisons competing plants around it. But the profits were rolling in, and as a result it seems that Intel saw little need at the top to buy its way into potential markets to come. Current Intel CEO Pat Gelsinger previously led Intel's Larrabee project, put into action after the failed Nvidia acquisition pitch, in an attempt to create a hybrid of graphics chips and Intel's PC chip design -- predicting that "today's graphics architectures are coming to an end." The project was a failure, thanks to poor graphics performance and scheduling issues. Gelsinger, however, appears to have never quite given up on the idea. In 2019, he gave an interview to the Computer History Museum (PDF warning), stating that, if Larabee was given more of a chance: "Nvidia would be a fourth the size they are today as a company, because I think Intel really had a shot right in that space" Now, with Gelsinger at the helm, Intel finds itself massively on the backfoot -- and it's difficult to know where to start when explaining its current woes. Mass layoffs, cancelled dividends, CPU crashing woes, and not to mention its ongoing manufacturing and fab issues and potential plans to sell parts of itself off, what once was seen as an invincible giant in the tech industry really does seem to be on its knees. But one aspect that keeps rearing its ugly head seems to be its approach to strategy and long-term planning, and potential acquisition deals that the company either turned down, or never bore fruit -- particularly in regards to AI. Back in August, reports suggested that Intel had also opted out of buying a $1 billion stake in OpenAI in 2018, which at the time would have been a sizeable 15% share in the company. Now OpenAI is reportedly worth around $80 billion dollars, meaning that had Intel bought in, its investment would have multiplied in value by a factor of 12. So it seems that poor planning and long-term strategic mistakes have continued, long after the potential Nvidia acquisition was off the table. Now Intel finds itself in dire financial straits, and by the looks of its most recent Arrow Lake desktop chips, it's unlikely to be the PC enthusiast market that saves it, either.

How Intel got left behind in the AI chip boom

Some Intel executives believed that the underlying design of graphics chips could eventually take on important new jobs in data centers, an approach that would eventually dominate AI systems. But the board resisted, according to two people familiar with the boardroom discussion who spoke only on the condition of anonymity because the meeting was confidential. Intel had a poor record of absorbing companies. And the deal would have been by far Intel's most expensive acquisition.In 2005, there was no inkling of the artificial intelligence boom that would come years later. But directors at Intel, whose chips served as electronic brains in most computers, faced a decision that might have altered how that transformative technology evolved. Paul Otellini, Intel's CEO at the time, presented the board with a startling idea: buy Nvidia, a Silicon Valley upstart known for chips used for computer graphics. The price tag: as much as $20 billion. Some Intel executives believed that the underlying design of graphics chips could eventually take on important new jobs in data centers, an approach that would eventually dominate AI systems. But the board resisted, according to two people familiar with the boardroom discussion who spoke only on the condition of anonymity because the meeting was confidential. Intel had a poor record of absorbing companies. And the deal would have been by far Intel's most expensive acquisition. Confronting skepticism from the board, Otellini, who died in 2017, backed away and his proposal went no further. In hindsight, one person who attended the meeting said, it was "a fateful moment." Today, Nvidia is the unrivaled 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. Nvidia's stock market value, for years a fraction of Intel's, is now more than $3 trillion, roughly 30 times that of the struggling Silicon Valley icon, which has fallen below $100 billion. As the company's valuation has sunk, some big tech companies and investment bankers have been considering what was once unthinkable: that Intel could be a potential acquisition target. Such scenarios add to the pressures facing Patrick Gelsinger, appointed in 2021 as Intel's CEO. He has focused on restoring the company's onetime lead in chip manufacturing technology, but longtime company watchers say Intel badly needs popular products -- such as AI chips -- to bolster revenue that declined by more than 30% from 2021 through 2023. "Pat Gelsinger is very much focused on the manufacturing side," said Robert Burgelman, a professor at the Stanford Graduate School of Business. "But they missed AI, and that has been catching up to them now." The story of how Intel, which recently cut 15,000 jobs, got left behind in AI is representative of the broader challenges the company now faces. There were opportunities missed, wayward decisions and poor execution, according to interviews with more than two dozen former Intel managers, board directors and industry analysts. The trail of missteps was a byproduct of a corporate culture born of decades of success and high profits, going back to the 1980s, when Intel's chips and Microsoft's software became the twin engines of the fast-growing personal computer industry. That culture was hard-charging and focused on its franchise in personal computers and later in data centers. Intel executives, only half-jokingly, described the company as "the largest single-cell organism on the planet," an insular self-contained world. It was a corporate ethos that worked against the company as Intel tried and failed, repeatedly, to become a leader in chips for AI. Projects were created, pursued for years and then abruptly shut down, either because Intel leadership lost patience or the technology fell short. Investments in newer chip designs invariably took a back seat to protecting and expanding the company's money-spinning mainstay -- generations of chips based on Intel's PC-era blueprint, called the x86 architecture. "That technology was Intel's crown jewel -- proprietary and very profitable -- and they would do anything in their power to maintain that," said James D. Plummer, a professor of electrical engineering at Stanford University and a former Intel director. Intel's leaders, at times, acknowledged the issue. Craig Barrett, a former Intel CEO, once compared the x86 chip business to a creosote bush -- a plant that poisons competing plants around it. Still, the profits were high for so long, Intel did not really shift course. At the time Intel considered a bid for Nvidia, the smaller company was widely viewed as a niche player. Its specialized chips were mostly used in machines for computer gamers, but Nvidia had started adapting its chips for other kinds of number-crunching fields such as oil and gas discovery. Where Intel's microprocessor chips excelled in rapidly executing calculations one after another, Nvidia's chips delivered superior performance in graphics by breaking tasks up and spreading them across hundreds or thousands of processors working in parallel -- an approach that would pay off years later in AI. After the Nvidia idea was rejected, Intel, with the board's backing, focused on an in-house project, code named Larrabee, to jump ahead of competitors in graphics. The project was led by Gelsinger, who had joined Intel in 1979 and rose steadily to become a senior executive. The Larrabee effort consumed four years and hundreds of millions of dollars. Intel was confident, perhaps arrogant, that it could transform the field. In 2008, speaking at a conference in Shanghai, Gelsinger predicted, "Today's graphics architectures are coming to an end." Larrabee would be the new thing. Larrabee was a hybrid, combining graphics with Intel's PC-style chip design. It was a bold plan to meld the two, with Intel's linchpin technology at the core. And it didn't work. Larrabee fell behind schedule and its graphics performance lagged. In 2009, Intel pulled the plug on the project, a few months after Gelsinger announced that he was departing to become president and chief operating officer of EMC, a maker of data storage gear. A decade after leaving Intel, Gelsinger still believed Larrabee was on the right track. In a 2019 oral history interview with the Computer History Museum, he recalled that people were beginning to use Nvidia chips and software for things beyond graphics. That was before the AI boom, but the direction was clear, Gelsinger said. Larrabee's progress was halting but, he insisted, it could have proved a winner with more corporate patience and investment. "Nvidia would be a fourth the size they are today as a company because I think Intel really had a shot right in that space," he said. Now, three years after he was wooed back to take over Intel, Gelsinger still holds that view. But in a brief interview with The New York Times recently, he also emphasized the long-term commitment that would have been needed. "I believed in it," he said. Had Intel kept at it, "I think the world would be very different today," Gelsinger said. "But you can't replay history on these things." Some of the Larrabee technology was used in specialized chips for scientific supercomputing. But Intel's graphics push was curtailed. Nvidia continued investing for years not only in its chip designs but also in the crucial software to enable programmers to write a wider range of software applications on its hardware. In later years, Intel continued to stumble in the AI market. In 2016, the company paid $400 million for Nervana Systems, one of a new crop of AI chip companies. Its CEO, Naveen Rao, was named head of Intel's fledgling AI products unit. Rao recounted a litany of problems he encountered at Intel, including corporate curbs on hiring engineers, manufacturing troubles and fierce competition from Nvidia, which was steadily improving its offerings. Still, his team managed to introduce two new chips, one of which was used by Facebook, he said. But in December 2019, Rao said he was stunned when, over his objections, Intel bought another AI chip startup, Habana Labs, for $2 billion. That deal came just as Rao's team was close to completing a new chip. Rao's feelings are still raw about that move. "You had a product that was ready to go and you shot it -- and you bought this company for $2 billion that set you back two years," said Rao, who resigned shortly afterward and is now vice president of AI at Databricks, a software company. Robert Swan, who was Intel's CEO at the time, declined to comment. Intel spread its efforts thin in AI by also developing multiple graphics-style chips -- products now discontinued -- as well as taking years to offer credible chips from the Habana Labs lineage. The latest version, called Gaudi 3, has attracted interest from some companies like Inflection AI, a high-profile startup, as a lower-cost alternative to Nvidia. Under Gelsinger, Intel has made some progress catching up to Asian rivals in chip manufacturing technology. Intel has persuaded Washington to pledge billions of dollars in federal funding -- under the CHIPS and Science Act -- to help revive its fortunes. Still, it will be a steep climb. Intel has lately designed new chips that have impressed industry analysts, including an AI chip for laptop PCs. Yet it is a measure of Intel's troubles that these new chips are being produced not in Intel factories, but by Taiwan Semiconductor Manufacturing Co. -- a decision, made to exploit that company's more advanced production technology, that tends to reduce Intel's profit on the chips. Today, Intel sees its AI opportunity emerging as the technology is increasingly used by mainstream businesses. Most corporate data resides in data centers still populated mainly by Intel servers. As more AI software is created for businesses, the more conventional computer processing will be needed to run those new applications. But Intel is not at the forefront of building big AI systems. That is Nvidia's stronghold. "In that race, they are so far ahead," Gelsinger said at a recent Deutsche Bank conference. "Given the other challenges that we have, we're just not going to be competing anytime soon."

How Intel Got Left Behind in the A.I. Chip Boom

Steve Lohr has written about the tech industry since the 1990s. Don Clark has covered the chip industry for more than 35 years. In 2005, there was no inkling of the artificial intelligence boom that would come years later. But directors at Intel, whose chips served as electronic brains in most computers, faced a decision that might have altered how that transformative technology evolved. Paul Otellini, Intel's chief executive at the time, presented the board with a startling idea: Buy Nvidia, a Silicon Valley upstart known for chips used for computer graphics. The price tag: as much as $20 billion. Some Intel executives believed that the underlying design of graphics chips could eventually take on important new jobs in data centers, an approach that would eventually dominate A.I. systems. But the board resisted, according to two people familiar with the boardroom discussion who spoke only on the condition of anonymity because the meeting was confidential. Intel had a poor record of absorbing companies. And the deal would have been by far Intel's most expensive acquisition. Confronting skepticism from the board, Mr. Otellini, who died in 2017, backed away and his proposal went no further. In hindsight, one person who attended the meeting said, it was "a fateful moment." Today Nvidia is the unrivaled A.I. 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 A.I. gold rush. Nvidia's stock market value, for years a fraction of Intel's, is now more than $3 trillion, roughly 30 times that of the struggling Silicon Valley icon, which has fallen below $100 billion. As the company's valuation has sunk, some big tech companies and investment bankers have been considering what was once unthinkable: that Intel could be a potential acquisition target. Such scenarios add to the pressures facing Patrick Gelsinger, appointed in 2021 as Intel's chief executive. He has focused on restoring the company's onetime lead in chip manufacturing technology, but longtime company watchers say Intel badly needs popular products -- such as A.I. chips -- to bolster revenue that declined by more than 30 percent from 2021 through 2023. "Pat Gelsinger is very much focused on the manufacturing side," said Robert Burgelman, a professor at the Stanford Graduate School of Business. "But they missed A.I., and that has been catching up to them now." The story of how Intel, which recently cut 15,000 jobs, got left behind in A.I. is representative of the broader challenges the company now faces. There were opportunities missed, wayward decisions and poor execution, according to interviews with more than two dozen former Intel managers, board directors and industry analysts. The trail of missteps was a byproduct of a corporate culture born of decades of success and high profits, going back to the 1980s, when Intel's chips and Microsoft's software became the twin engines of the fast-growing personal computer industry. That culture was hard-charging and focused on its franchise in personal computers and later in data centers. Intel executives, only half-jokingly, described the company as "the largest single-cell organism on the planet," an insular self-contained world. It was a corporate ethos that worked against the company as Intel tried and failed, repeatedly, to become a leader in chips for artificial intelligence. Projects were created, pursued for years and then abruptly shut down, either because Intel leadership lost patience or the technology fell short. Investments in newer chip designs invariably took a back seat to protecting and expanding the company's money-spinning mainstay -- generations of chips based on Intel's PC-era blueprint, called the x86 architecture. "That technology was Intel's crown jewel -- proprietary and very profitable -- and they would do anything in their power to maintain that," said James D. Plummer, a professor of electrical engineering at Stanford University and a former Intel director. Intel's leaders, at times, acknowledged the issue. Craig Barrett, a former Intel chief executive, once compared the x86 chip business to a creosote bush -- a plant that poisons competing plants around it. Still, the profits were high for so long, Intel did not really shift course. At the time Intel considered a bid for Nvidia, the smaller company was widely viewed as a niche player. Its specialized chips were mostly used in machines for computer gamers, but Nvidia had started adapting its chips for other kinds of number-crunching fields such as oil and gas discovery. Where Intel's microprocessor chips excelled in rapidly executing calculations one after another, Nvidia's chips delivered superior performance in graphics by breaking tasks up and spreading them across hundreds or thousands of processors working in parallel -- an approach that would pay off years later in artificial intelligence. After the Nvidia idea was rejected, Intel, with the board's backing, focused on an in-house project, code named Larrabee, to jump ahead of competitors in graphics. The project was led by Mr. Gelsinger, who had joined Intel in 1979 and rose steadily to become a senior executive. The Larrabee effort consumed four years and hundreds of millions of dollars. Intel was confident, perhaps arrogant, that it could transform the field. In 2008, speaking at a conference in Shanghai, Mr. Gelsinger predicted, "Today's graphics architectures are coming to an end." Larrabee would be the new thing. Larrabee was a hybrid, combining graphics with Intel's PC-style chip design. It was a bold plan to meld the two, with Intel's linchpin technology at the core. And it didn't work. Larrabee fell behind schedule and its graphics performance lagged. In 2009, Intel pulled the plug on the project, a few months after Mr. Gelsinger announced he was departing to become president and chief operating officer of EMC, a maker of data storage gear. A decade after leaving Intel, Mr. Gelsinger still believed Larrabee was on the right track. In a 2019 oral history interview with the Computer History Museum, he recalled that people were beginning to use Nvidia chips and software for things beyond graphics. That was before the A.I. boom, but the direction was clear, Mr. Gelsinger said. Larrabee's progress was halting but, he insisted, it could have proved a winner with more corporate patience and investment. "Nvidia would be a fourth the size they are today as a company because I think Intel really had a shot right in that space," he said. Now, three years after he was wooed back to take over Intel, Mr. Gelsinger still holds that view. But in a brief interview with The New York Times recently, he also emphasized the long-term commitment that would have been needed. "I believed in it," he said. Had Intel kept at it, "I think the world would be very different today," Mr. Gelsinger said. "But you can't replay history on these things." Some of the Larrabee technology was used in specialized chips for scientific supercomputing. But Intel's graphics push was curtailed. Nvidia continued investing for years not only in its chip designs but also in the crucial software to enable programmers to write a wider range of software applications on its hardware. In later years, Intel continued to stumble in the A.I. market. In 2016, the company paid $400 million for Nervana Systems, one of a new crop of A.I. chip companies. Its chief executive, Naveen Rao, was named head of Intel's fledgling A.I. products unit. Mr. Rao recounted a litany of problems he encountered at Intel, including corporate curbs on hiring engineers, manufacturing troubles and fierce competition from Nvidia, which was steadily improving its offerings. Still, his team managed to introduce two new chips, one of which was used by Facebook, he said. But in December 2019, Mr. Rao said he was stunned when, over his objections, Intel bought another A.I. chip start-up, Habana Labs, for $2 billion. That deal came just as Mr. Rao's team was close to completing a new chip. Mr. Rao's feelings are still raw about that move. "You had a product that was ready to go and you shot it -- and you bought this company for $2 billion that set you back two years," said Mr. Rao, who resigned shortly afterward and is now vice president of A.I. at Databricks, a software company. Robert Swan, who was Intel's chief executive at the time, declined to comment. Intel spread its efforts thin in A.I. by also developing multiple graphics-style chips -- products now discontinued -- as well as taking years to offer credible chips from the Habana Labs lineage. The latest version, called Gaudi 3, has attracted interest from some companies like Inflection AI, a high-profile start-up, as a lower-cost alternative to Nvidia. Under Mr. Gelsinger, Intel has made some progress catching up to Asian rivals in chip manufacturing technology. Intel has convinced Washington to pledge billions of dollars in federal funding -- under the CHIPS and Science Act -- to help revive its fortunes. Still, it will be a steep climb. Intel has lately designed new chips that have impressed industry analysts, including an A.I. chip for laptop PCs. Yet it is a measure of Intel's troubles that these new chips are being produced not in Intel factories, but by Taiwan Semiconductor Manufacturing Company -- a decision, made to exploit that company's more advanced production technology, that tends to reduce Intel's profit on the chips. Today, Intel sees its A.I. opportunity emerging as the technology is increasingly used by mainstream businesses. Most corporate data resides in data centers still populated mainly by Intel servers. As more A.I. software is created for businesses, the more conventional computer processing will be needed to run those new applications. But Intel is not at the forefront of building big A.I. systems. That is Nvidia's stronghold. "In that race, they are so far ahead," Mr. Gelsinger said at a recent Deutsche Bank conference. "Given the other challenges that we have, we're just not going to be competing anytime soon."

Intel's former CEO reportedly wanted to buy Nvidia for $20 billion in 2005 -- Nvidia is worth over $3 trillion today

In 2005, Intel CEO Paul Otellini surprised the company's board. According to a report from the New York Times, he suggested that Intel buy Nvidia for "as much as" $20 billion. According to the Times's sources ("two people familiar with the boardroom discussion"), even some Intel executives thought that Nvidia's designs could eventually play an important role in data centers. While that idea would come to fruition with the modern AI boom, the board pushed back against it. It would have been Intel's most expensive acquisition, and there were worries about integrating the company. Otellini backed off, and that was that. Instead, Intel's board backed an internal graphics project, Larabee, which now-CEO Pat Gelsinger helmed. It used Intel's x86 technologies, and the GPU was a sort of hybrid of a CPU and GPU. Intel ultimately pulled the plug on the project, though it would later return to graphics with its Xe and Arc projects. On the AI side, Intel has made a handful of purchases, including Nervana Systems and Movidius in 2016 and Habana Labs in 2019. But none held a candle to where Nvidia is today -- a juggernaut with a market cap of over $3 trillion. Intel's Gaudi 3 AI chip is positioned as a cheaper alternative to Nvidia's offerings, but the company is primarily thought to have missed the boat on AI. With its other struggles in manufacturing and building customers for its foundry business, Intel is now a much smaller company than Nvidia at under $100 billion. Intel is working on NPUs for consumer technology, including laptops and now its desktop CPUs. This isn't the only time Intel gave up on getting into AI early. In 2017 and 2018, Intel had the opportunity to buy a stake in OpenAI when it was still a tiny non-profit research firm. But then-CEO Bob Swan put the kibosh on that deal, assuming that AI models were far from reaching a broad market.