Intel (INTC, Financial) is experiencing a significant downturn as its Q2 earnings and revenue guidance fell short of expectations, deepening concerns about its ability to keep up with rivals such as NVIDIA (NVDA, Financial), Advanced Micro Devices (AMD, Financial), and Taiwan Semiconductor (TSM, Financial). This year, INTC's stock has dropped approximately 36%, indicating growing skepticism among investors about the company's shift towards a foundry business model and its potential to reclaim its former dominance in the semiconductor industry.
Despite a brief surge in optimism fueled by a recovering PC market and potential improvements in its data center business, Intel's Q1 results have left investors wanting. Notably, the Client Computing Group (CCG) saw a 31% increase in revenue, though this growth was hampered by component shortages.
- Intel's CEO, Pat Gelsinger, admitted the company missed early AI demand in data centers, dominated by NVIDIA's processors. Despite this, Gelsinger has claimed Intel will lead in AI-powered PCs, though supply issues are currently hindering the full potential of its new Core Ultra processors. However, growth is expected to pick up in late 2024.
- Data center revenue only saw a modest 5% year-over-year increase to $3.0 billion in the DCAI segment, underwhelming given the prior year's low base. The focus on AI infrastructure building by enterprises continues, with Intel optimistic about a data center recovery later this year, particularly in AI.
- Intel's launch of the Gaudi 3 AI chip aims to compete with NVDA and AMD, expecting $500 million in sales this year, a fraction of NVDA's data center revenue, which surged 409% to $18.4 billion last quarter.
- The company's transition to a foundry model faces hurdles, with a reported operating loss of nearly $7.0 billion in FY23 and a 10% revenue decrease to $4.4 billion in Q1. However, the addition of Microsoft (MSFT, Financial) as a customer for its 18A production technology offers a glimmer of hope.
Despite these efforts, Intel's path forward is fraught with uncertainty, leaving investors wary of the company's long-term prospects in the fiercely competitive semiconductor industry.
