Nvidia Corp. (NVDA) is set to face a much tougher competitive environment in the white-hot market for server co-processors used to power artificial intelligence projects, as the likes of Intel Corp. (INTC) , AMD Inc. (AMD) , Fujitsu and Alphabet Inc./Google (GOOGL) join the fray. But the ecosystem that the GPU giant has built in recent years, together with its big ongoing R&D investments, should allow it to remain a major player in this space.

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It's a basic rule of economics that when a market sees a surge in demand that leads to a small number of suppliers amassing huge profits, more suppliers will enter in hopes of getting a chunk of those profits. That's increasingly the case for the server accelerator cards used for AI projects, as a surge in AI-related investments by enterprises and cloud giants contribute to soaring sales of Nvidia's Tesla server GPUs.

Thanks partly to soaring AI-related demand, Nvidia's Datacenter product segment saw revenue rise 186% annually in the company's April quarter to $409 million, after rising 205% in the January quarter. Growth like that doesn't go unnoticed. Over the last 12 months, several other chipmakers and one cloud giant have either launched competing chips or announced plans to do so.

To understand why some of these rival products could be competitive with Tesla GPUs on a raw price/performance basis, it's important to understand what made Nvidia's chips so popular for AI workloads in the first place. Whereas server CPUs, like their PC and mobile counterparts, feature a small number of relatively powerful CPU cores -- the most powerful chip in Intel's new Xeon Scalable server CPU line has 28 cores -- GPUs can feature thousands of smaller cores that work in parallel, and which have access to to blazing-fast memory.

That gives GPUs a big edge for projects that involve a subset of AI known as deep learning. Deep learning involves training models that attempt to function much like how neurons in the human brain do to detect patterns in content such as voice, text and images, with the algorithms used by the models (like the human brain) getting better at both understanding these patterns as they take in more content and applying what they've learned to future tasks. Once an algorithm has gotten good enough, it can be used against real-world content in an activity known as inference.

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Nvidia Faces Much Tougher Competition in Artificial Intelligence, but Will Still Be OK - TheStreet.com