Here's why this AI chipmaker continues to outflank the competition

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Intel (INTC) may have jumped over Wall Street's low bar in the second quarter , but the embattled chipmaker's results further highlight rival Nvidia (NVDA) as the semiconductor firm to beat in the nascent race to dominate artificial intelligence. The biggest takeaway — or " read-through," in Wall Street parlance — from Intel's results is that data-center customers have recently emphasized spending on AI projects, leading to softer demand for the company's bread and butter: traditional server chips, known as central processing units (CPUs). The shift is boosting demand for graphics processing units (GPUs), a type of high-powered chip that can run complex AI workloads. That's great news for Club holding Nvidia, which dominates the GPU market. Nvidia's GPUs, for example, helped train OpenAI's viral ChatGPT. The semiconductor firm has been the best-performing stock in the S & P 500 this year, soaring around 219%, on the back of the generative AI boom. Intel's GPU offerings, on the other hand, are still in the infancy stage. "We do see that big cloud customers, in particular, have put a lot of energy into building out their high-end AI training environments...and that is putting more of their budgets focused or prioritized into the AI portion of their build-out," Intel CEO Pat Gelsinger said Thursday. As a result, he explained, data-center CPUs "contracted meaningfully" in the first half of 2023, partly a result of a weaker-than-expected economic recovery in China and some elevated inventories among enterprise customers — weakness he expects to last "at least" through the third quarter. Indeed, two big cloud-computing providers — Club holdings Microsoft (MSFT) and Alphabet (GOOGL) —indicated earlier this week that they're investing heavily in AI infrastructure, which bodes well for Nvidia . Now throw Intel's commentary in the mix, and Nvidia seems very capable of not only meeting its jaw-dropping second-quarter guidance when it reports Aug. 23, but also issuing a strong third-quarter forecast. In a CNBC interview Friday, Bank of America semiconductor analyst Vivek Arya illustrated why the shift toward AI servers lifts Nvidia at the expense of Intel. "Let's take a traditional server where Intel is very dominant. A traditional server sells for $10,000, and Intel sells about 20% of it," Arya said on CNBC. "But when we go to an AI server, Intel's contribution drops to low-single digit percent, and that's where Nvidia's contribution gets to almost 60%, 70% of the price of the server." Meanwhile, Intel's report Thursday paints a somewhat mixed picture for our other Club chip name, Advanced Micro Devices (AMD), its longtime rival in data-center CPUs. Under CEO Lisa Su's leadership, AMD has taken meaningful market share from Intel in recent years. This has sometimes meant that Intel and AMD take divergent paths within the same quarter. Earlier this year, for example, Intel issued disastrous fourth-quarter results and first-quarter guidance, only for AMD to deliver far better numbers and guidance a few days later, which suggested Wall Street's concern was overblown . Still, it's possible AMD also saw softer demand for its data-center CPUs in the last quarter due to ramped-up AI spending. Like Intel, AMD is also working to bring its own AI-focused chips to market . More broadly, we still see AMD as well-positioned to capture additional share from Intel in the server market, even if in the second quarter, as Gelsinger contended, Intel's slice of the pie remained "relatively stable." Intel's personal-computer division was a relative bright spot in the second quarter. After a multi-quarter PC chip glut, Gelsinger said inventory has reached a healthy level, helping clear the way for a "sustained recovery" in the second half of the year. That would generally be good news for AMD because it also competes with Intel in the PC market and has been suffering from excess inventory, too. But Gelsinger's assertion that Intel's PC business gained share in the quarter could complicate that picture when AMD reports. Intel shares rose more than 5% Friday, to around $36.50 each, while Nvidia and AMD each climbed more than 1.5%, to roughly $466 and $113 per share, respectively. Bottom line Nvidia wins again — again. We made that argument Wednesday after Microsoft and Alphabet reported, and Intel's results and commentary further indicate the AI tailwinds are blowing strong at Nvidia's back. Yes, Nvidia stock has had a monster run, more than tripling year-to-date, but the fundamental reason for that outperformance — its AI dominance — is completely intact. It remains an "own it, don't trade" stock, alongside Apple (AAPL). For AMD, we're not overreacting to anything we heard from Intel, which offered some reason for caution and some reason for cheer. Ultimately, AMD's own second-quarter results and forward guidance Tuesday will speak the loudest. (Jim Cramer's Charitable Trust is long AMD and NVDA . See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED. Jen-Hsun Huang, president and chief executive officer of Nvidia Corp., speaks during the company's event at Mobile World Congress Americas in Los Angeles, California, U.S., on Monday, Oct. 21, 2019. Patrick T. Fallon | Bloomberg | Getty Images