Intel’s latest earnings report sparked some optimism among investors, despite challenges in the booming AI chip market. On Thursday, Intel projected its revenue for the current quarter to fall between $13.3 billion and $14.3 billion, slightly exceeding Wall Street’s expectations. As a result, shares surged over 9% in after-hours trading following the release of its third-quarter earnings.
This stock price increase signals investor confidence in Intel’s strategy to address its financial woes, which includes cutting its workforce by 15%, or over 15,000 jobs, and pausing dividend payments until year-end. The company aims to reduce capital expenditures by $10 billion by 2025.
Intel’s struggles are largely due to a rapid shift towards AI chips for large data centers—a market where it has fallen behind. In contrast, Nvidia, the dominant player in this space, reported an impressive $30 billion in revenue for the quarter ending July, up 122%, with over 87% coming from its data center chips.
Intel’s AI chip, Gaudi, has not gained traction. During the earnings call, CEO Pat Gelsinger admitted the company would not achieve its $500 million revenue target for Gaudi by year-end. “The overall uptake of Gaudi has been slower than we anticipated,” he explained.
Industry analyst Jack Gold from J.Gold Associates noted that Intel’s initial sales expectations for Gaudi were overly ambitious, adding that now the company is adopting a more realistic outlook. Gaudi struggles against competitors like Nvidia’s H100 and H200 chips, which outperform it in training generative AI models. AMD is also stepping up, boosting its MI300X sales forecast for this quarter from $4.5 billion to $5 billion.
For the September quarter, Intel reported a 6% decrease in revenue year-over-year, totaling $13.3 billion, and a loss of 46 cents per share, excluding certain items. However, its data center division saw a 9% revenue increase to $3.3 billion, primarily driven by CPU sales for traditional applications.
Looking ahead, Intel expects growth in its data center business as enterprises begin implementing generative AI applications on Gaudi processors for specific tasks. Gaudi promises to be a cost-effective option compared to AMD and Nvidia’s offerings.
Gartner predicts that generative AI will lead to server sales nearly doubling from $134 billion in 2023 to $257 billion by 2025. Gelsinger expressed optimism about the market shifting toward Intel’s offerings. David Nicholson of The Futurum Group echoed his sentiments, stating that Intel’s strategy for Gaudi and Xeon CPUs aligns well with market trends.
Nicholson believes Intel would benefit from spinning off its foundry business to channel resources into chip design. In contrast, Gelsinger envisions Intel’s foundries as crucial for its manufacturing strategy, even aiming to produce for external clients, including competitors.
Intel’s foundry revenue slipped 8% in the previous quarter to $4.4 billion, and Gelsinger doesn’t foresee a significant rebound for a couple of years. The company plans to debut chips built on the advanced 18A manufacturing process in the first half of next year, which analysts believe could attract more third-party chip designers.
Gelsinger maintains that the worst is over for Intel, asserting that the ongoing cost-cutting measures will yield positive returns. “The first phase was very much about getting back in the game,” he stated.