Intel Shares Sink As AI Surge Hits Chip Revenue

Intel shares sank by as much as 12 percent on Friday after the company reported gloomy revenue and margin predictions for the current quarter, fuelling concerns that corporate enthusiasm for AI acceleration chips is eating into budgets for mainstay data centre server processors.

The US chipmaker estimated second-quarter revenue at $12.5 billion (£10bn) to $13.5bn, below analysts’ estimates of about $13.57bn.

The day’s share price decline was set to erase about $19bn from Intel’s market capitalisation.

Intel’s shares are down more than 30 percent this year as it faces the challenge of competing with the likes of AI chip market leader Nvidia, which has seen the AI frenzy push its market capitalisation well over $2 trillion (£1.6tn).

‘Profoundly broken’

When the AI boom hit Intel was already in the midst of a multi-year effort to restructure its business around contract chipmaking to compete with market leader Taiwan Semiconductor Manufacturing Corp. (TSMC), but the firm earlier this month reported an operating loss of $7bn for the contract foundry unit, up from $5.2bn the previous year, emphasising the ongoing headwinds in that department and leading to another investor sell-off.

Bernstein analyst Stacy Rasgon wrote that Intel was “profoundly broken” and that remediation efforts would take years to bear fruit “with success in their endeavors far from assured”.

“We’d like to believe the bottom is in but we have lost count of the times we have heard it,” he wrote.

Intel said in March it would spend $100bn across four US states to build or expand chip manufacturing facilities after it was granted $20bn in grants and loans under the US’ Chips and Science Act.

The firm also announced a new AI accelerator chip, Gaudi 3, which analyst Ben Reitzes of Melius Research called a “positive” development, noting that Intel expects $500m in Gaudi 3 revenues this year, “implying a steep ramp and momentum into 2025”.

AI competition

“Nobody is expecting a few billion in AI accelerator revenue from Intel,” Reitzes noted.

Intel is expected to benefit from a corporate PC refresh beginning in the second half of this year, and Reitzes said he expects to see a stabilisation in Intel’s traditional server business and a lift to average selling prices.

Analysts at Baird and and Goldman Sachs said chip designer ARM – which has been another beneficiary of the AI boom since its shares went public last September – could make inroads into both the data centre and desktop markets, posing yet another threat to Intel.

ARM-based chips have proven popular with Apple’s “Apple Silicon” M-series range in Mac computers and Qualcomm is targeting the Windows platform with its upcoming ARM-based Snapdragon X.