Wednesday, April 14, 2021

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Nvidia's first data-center CPU is a huge hedge against losing its ARM bid

Nvidia (NVDA) is laying the groundwork for a future where the chipmaker could be one of the most dominant players in the competitive data-center market, putting Intel (INTC) and AMD (AMD) directly in its crosshairs.

Nvidia’s latest move comes in the form of its first-ever central processing unit, or CPU, built specifically for data-centers, called Grace. While Grace could help Nvidia compete with AMD and Intel, the new CPU could also soften the blow if Nvidia’s planned $40 billion acquisition of chip designer ARM collapses.

“The disclosure of Grace has a number of dimensions to it at a high level...because the ARM deal may or may not get done. It's a plan B,” said Hans Mosesmann, managing director at Rosenblatt Securities.

Nvidia is known around the world for its best-in-class graphics processing units that power data centers focused on things like artificial intelligence (AI) and machine learning (ML).

It’s never had a data-center CPU of its own, though. That’s problematic because Nvidia has to rely on Intel's or AMD’s CPUs when offering its own data-center GPU systems. With Grace, Nvidia can ditch Intel and AMD, at least at the highest of high-end data-center systems.

An ARM acquisition would also set up Nvidia to build out its own data-center systems without needing Intel or AMD. And in the event it doesn’t happen, Grace is now there for Nvidia to show the company’s customer base that it has another path to not relying on Intel or AMD.

“By having its own CPU combined with the GPU is a pretty powerful story and, I think, it's certainly indicative of the future,” Glenn O’Donnell, vice president & research director at Forrester Research, told Yahoo Finance.

Nvidia’s Grace and ARM moves

Nvidia’s Grace, due out in 2023, is meant for use in the types of heavy-duty data-center applications that major laboratories work on. In fact, both the U.S. Department of Energy’s Los Alamos National Laboratory and the Swiss National Supercomputing Centre (CSCS) plan to build the first two Grace-based supercomputers.

According to Nvidia, when combined with the company’s GPUs, Grace offers 10x faster performance in systems that use Nvidia GPUs and rival CPUs. Nvidia says that Grace systems will likely continue to serve as niche data-center installations. However, as the need to process ever greater amounts of data to train artificial intelligence (AI) and machine learning (ML) systems increases, it’s easy to see how Grace could fit into Nvidia’s future plans.

“When you look at the Grace architecture it is very unique, and it doesn't look like anything out there, and it solves a problem that didn't used to exist,” Nvidia CEO Jensen Huang said during a Tuesday press call. “This is an opportunity and a market, a way of doing computing that didn't exist 20 years ago.”

Nvidia’s bigger aspiration is its acquisition of ARM, which Huang said in September would unite Nvidia’s AI computing capabilities with the “vast ecosystem of Arm’s CPU.”

That deal, however, faces regulatory scrutiny and uncertainty, including an antitrust probe from U.K. officials. Google (GOOG, GOOGL), Microsoft (MSFT), and Qualcomm (QCOM) have also protested the deal, arguing that it would give Nvidia power over a company that licenses its chip designs to tech giants around the world including Apple (AAPL).

But that’s where Grace comes in. In the event that the deal doesn’t come to fruition, Grace provides Nvidia with a means to prove it is capable of producing its own CPUs.

Nvidia will still have its work cut out for it if it’s to truly threaten the incumbent chip leaders. While Grace has the makings of a huge win for the company, Nvidia won’t release it for another two years. And since Grace is designed for use in the most demanding of situations, it won’t be a volume-seller for the company.

What’s more, Nvidia will still continue to work with Intel and AMD in the PC market where they frequently support each other in building out consumer laptops and desktops.

That said, Nvidia’s decision to push forward with Grace proves it’s willing and able to compete directly against Intel and AMD in the data-center market. And if the ARM deal does go through, Nvidia could be an even bigger threat into the future.

“It's not going to impact their business in the near term, probably even in the mid term,” said Mosesmann. “But I think Nvidia is doing things that The Street and the industry may not even understand yet. It’s just classic Nvidia.”

By Daniel Howley, tech editor. Follow him at @DanielHowley