It doesn't make much sense to say that Intel can't build something better than a GPU, right? It's like saying the reason nvidia doesn't build CPUs is because they can't build a better CPU than Intel. It distracts the conversation.

So the question really is, what is the long term strategy and why? It appears to me that Intel has validated some of this "custom hardware" FPGA strategy and that their view is it will be "better together."

I agree that Intel is erecting roadblocks, but I doubt it is because they "can't build a GPU," rather more likely because "they can erect roadblocks." In fact, they are obligated, by their shareholders, to erect those roadblocks (or to play dirty if you want).