Intel’s Recovery at Risk as AI Dominance Looms
After a period of struggle and disappointments, Intel Corp. is showing signs of a potential recovery. The company’s upcoming earnings report will reveal whether Intel can keep up with the emerging artificial-intelligence (AI) era or risk being left behind.
Intel reported its largest quarterly loss ever last earnings season, but analysts are hopeful that the company can bounce back with the help of its battered PC business. However, concerns arise as competitors like Nvidia Corp. and Advanced Micro Devices Inc. dominate the AI space.
During the last earnings call, Intel’s CEO Pat Gelsinger mentioned the company’s potential in AI. However, given Intel’s substantial loss and continuous letdowns, analysts are uncertain about the credibility of this estimate.
When Intel releases its results for the June-ended quarter after Thursday’s market close, investors will be watching closely for signs of stabilization in the company’s business.
Some analysts, like C.J. Muse from Evercore ISI, speculate that Intel’s low point was reached in the March quarter. However, the allocation of spending by major cloud customers towards AI infrastructure may hinder Intel’s recovery, as it is not as well-positioned for this trend as Nvidia and AMD, both of which recently launched new AI products.
Despite these concerns, Muse expects Intel to come out slightly ahead and improve overall, based on previous commentary indicating that the June-ending quarter was poised to perform well. Muse anticipates a strong showing from Intel’s PC business in the back half of the year as customer inventory is fully digested and products are shipped to meet demand.
Vijay Rakesh, an analyst from Mizuho, believes that Intel may see some incremental revenue from the AI revolution but growth will be more subdued compared to Nvidia and AMD.
Christopher Rolland, an analyst at Susquehanna Financial, expects Intel to post modest improvements, but doubts the long-term viability of this momentum. He cautions that Intel’s focus on central processing units for revival may hinder its ability to compete with AI-focused graphics processing units.
Rolland also expresses concerns about Intel’s server competitiveness, especially when AMD’s Genoa chip is expected to gain additional market share in the second half of the year.
Furthermore, Intel’s gross margin relief appears unlikely as the company invests heavily in its foundry strategy and ramps up new node production. This suggests that gross margins may remain compressed for the foreseeable future.
In late June, Intel faced significant backlash after unveiling its strategy for its third-party fab business, which aims to compete with Taiwan Semiconductor Manufacturing Co. (TSMC). Intel’s decision not to name a major customer led to negative market sentiment. TSMC also experienced pressure when it announced a decline in its revenue forecast.
Unlike other chip makers who rely on third-party fabs, Intel operates its own foundries. However, their ability to make up ground with new node ramps and compete with TSMC remains uncertain.
Analysts surveyed by FactSet predict that Intel will report an adjusted loss of 4 cents per share for the second quarter, with revenue totaling $12.12 billion.
Overall, the road to recovery for Intel appears to be challenging. While the company may benefit from its PC business, analysts express reservations about its ability to capitalize on the growing interest in AI. With Nvidia and AMD leading the way in AI innovation, Intel’s position in the market may be at risk in the long run.
