Source: PaxForex Premium Analytics Portal, Fundamental Insight

Intel is the largest chipmaker in the world, manufacturing products that range from personal computers to data centers. The company is also currently the leading supplier of CPUs for laptops, desktops, and servers. However, opposition from ARM, Advanced Micro Devices, and NVIDIA has been putting tension on Intel recently, and it's beginning to take its toll on the famous company. Let's take a look at a few reasons for the possible anxiety among investors.

Intel chips are built on the x86 instruction set, which is fundamentally different from ARM chips by their architecture. The difference between the two is simple: Intel chips are made for performance, and ARM chips are made for efficiency.

Nevertheless, ARM chips also allow a level of customization that Intel cannot equal. It is because Intel sells its chips directly, while ARM licenses its processor architecture to partners. It has enabled various technology businesses to build ARM's energy-efficient architecture by adding their own customizations to boost performance. In fact, as of November 2020, the world's most powerful supercomputer runs on custom ARM-based processors.

Also, two years ago, Amazon began using its own ARM-based Graviton processors to displace Intel chips in its Amazon Web Services data centers. By comparison, Amazon's custom-built chips offer up to 40 percent better price-performance than Intel's chips. Apple recently made a similar decision, replacing the Intel chips in its MacBook Air and MacBook Pro laptops with its own M1 chips. These custom ARM-based processors actually surpass the performance of Intel's latest Tiger Lake notebook processors. And just a few weeks ago, Microsoft followed suit, stating that it would be developing its own ARM-based chips for its data centers and Surface PCs.

It is unfortunate for Intel. The company is losing customers in markets it has historically controlled, such as data centers and PCs, as the preferences of those customers change. Companies need customized solutions, and Intel's current products can't provide them.

For years, Intel Xeon processors have dominated the data center market. However, NVIDIA has also become an important player in this market because its graphics processing units (GPUs) are much better at handling large workloads such as artificial intelligence. In fact, NVIDIA's recently launched Ampere GPU is up to 237 times faster than Intel CPUs.

In 2020, NVIDIA increased its data center business and obtained networking solutions provider Mellanox for about $7 billion. Compared with Intel products, Mellanox networking solutions offer higher performance and, as a result, have gained a larger share of the market. For NVIDIA, the acquisition has already allowed the company to combine its GPUs with Mellanox technology to create products such as the Bluefield-2X DPU, which extends the capabilities of the Mellanox SmartNIC with the ARM CPU cores and AI capabilities of NVIDIA GPUs. In other words, NVIDIA can combine its accelerators and networking products together to improve data center security and efficiency. This not only aligns with the trend toward high-performance networking in the data center but also further differentiates NVIDIA's offerings because Intel has no comparable product.

Moreover, NVIDIA has announced its intention to acquire ARM. If approved, this would combine NVIDIA's best-in-class accelerators, high-performance Mellanox networks, and ARM's energy-efficient CPUs. And while ARM processors currently occupy only a small share of the data center market, NVIDIA's focus on research and development could help ARM create a server CPU that would further displace Intel from the data center.

In recent years, AMD Ryzen chips have helped the company take significant market share from Intel in both notebooks and desktop CPUs. For desktop PCs, AMD released its Ryzen 5000 series of chips in November 2020. Compared to Intel's latest desktop chips, the 10th generation of Core processors codenamed Comet Lake, those Ryzen chips offer better performance across the board - gaming, single-threaded (light) computing, and multi-threaded (heavy) computing. However, Intel plans to launch Rocket Lake, the 11th generation of its desktop Core CPUs, in the first quarter of fiscal 2021. This new technology could help the company regain some of its lost ground.

Besides, AMD has also taken its place in the server (data center) market with its second-generation EPYC processors, codenamed Rome. And Intel didn't help itself here - the company delayed the launch of Ice Lake, a scalable third-generation Xeon processor for servers. That chip was originally set to go into production in early 2020, but now management says Ice Lake won't launch until the first quarter of fiscal 2021. It could delay the launch of the next Sapphire Rapids server chip, currently scheduled for late 2021. If that happens, AMD could easily take over much of that market with the upcoming release of the third-generation EPYC processor, codenamed Milan.

All this competition has put pressure on Intel, and it has taken a heavy toll on the company's financial performance. Overall revenue growth has been slow, only 26% over the past three years, compared to 65% growth for NVIDIA and 71% growth for AMD. Also, NVIDIA and AMD's gross margins rose, while Intel's margins fell from 62% in 2017 to 53% in the most recent quarter, indicating a loss of pricing power. Investors should watch these numbers closely going forward.

On the positive side, Intel is still generating far more revenue than its competitors, which means it has more cash to spend on operating and capital expenditures. If Intel can put this advantage into practice, it can rebuild its eroding competitive advantage. However, given the high performance of Intel's competitors and the resulting deterioration in the company's financial performance, investors should be cautious when buying this stock.

While the price is above 54.10, follow the recommendations below:

• Time frame: D1
• Recommendation: long position
• Entry point: 57.50
• Take Profit 1: 64.80
• Take Profit 2: 67.40

Alternative scenario:

If the level 54.10 is broken-down, follow the recommendations below.

• Time frame: D1
• Recommendation: short position
• Entry point: 54.10
• Take Profit 1: 50.40
• Take Profit 2: 48.30