At the beginning of August, Intel’s stock price saw a significant decline following the release of its earnings report. The downturn was largely anticipated due to Intel’s longstanding struggles with its foundry business, which has been consistently losing money. Meanwhile, fabless competitors like Advanced Micro Devices have successfully gained market share.
Historically dominant in the PC processor market, Intel has faced challenges in extending its leadership into other areas due to a resistance to taking risks. This hesitancy led to missed opportunities in the mobile segment and is now impacting its performance in artificial intelligence (AI).
Intel also lost Apple as a customer for its Macs after Apple’s dissatisfaction with Intel’s chip quality and development pace grew. Seeking better battery performance, Apple switched its manufacturing partner to Taiwan Semiconductor Manufacturing (TSMC), which produces smaller chips.
Intel missed other critical opportunities, such as a potential investment in OpenAI in 2017. Discussions were underway for Intel to acquire a 15% stake in OpenAI for $1 billion. However, then-CEO Bob Swan doubted that generative AI models would be market-ready soon enough to justify the investment, leading Intel to forgo the deal. This decision highlights a pattern of short-sightedness within the company.
Additionally, Intel failed to meet SoftBank’s requirements for developing an AI chip to compete with Nvidia. This was yet another instance of Intel’s products not aligning with industry standards, reflecting the company’s ongoing issues.
However, recent announcements about Intel’s foundry division have injected some optimism among investors. These announcements drove a 9.2% increase in stock price over two days (September 16-17).
A notable development was the expanded partnership between Intel and Amazon. This multiyear, multibillion-dollar program will have Intel’s foundry produce custom chips, including an AI fabric chip, using its forthcoming 18A (18 angstrom) process. Additionally, Intel will develop a Xeon 6 chip for AI workloads. The expansion, while not a new relationship, is significant as it indicates a strong vote of confidence from a major customer at a critical time for Intel.
The exact financial impact of this expansion remains unclear. The development work will occur in Ohio, where Intel plans to establish a new semiconductor manufacturing plant. Concurrently, Amazon announced a $7.8 billion investment to expand its data center operations.
In tandem with the Amazon development, Intel announced it had received $3 billion in direct funding from the CHIPS Act for the Secure Enclave program, managed by the U.S. Defense Department. This funding is viewed as a sign of “continued progress” in Intel’s foundry efforts, despite ongoing financial losses. The federal government’s preference for working with a domestic company that manufactures chips in the U.S. underscores the importance of this funding.
The announcement added to Intel’s previous reception of $8.5 billion from the CHIPS Act for manufacturing.
As Intel restructures and aims to regain its footing in the AI era, the critical question remains whether the company can learn from past mistakes and adopt a culture that embraces risk-taking and bold thinking. Recent events, such as Director Lip-Bu Tan’s resignation due to frustrations with Intel’s workforce and bureaucratic culture, indicate that significant cultural changes are still needed.
For investors, the recent positive announcements are encouraging, yet the road to recovery for Intel will be long and challenging. Achievements in the foundry business will be crucial for sustainable stock performance. If Intel continues to make strides similar to recent developments, investor confidence and stock value could see further improvement.
Disclosure: John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jeremy Bowman holds positions in Amazon. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Apple, Nvidia, Taiwan Semiconductor Manufacturing, and Uber Technologies. The Motley Fool recommends Intel and suggests the following options: short November 2024 $24 calls on Intel. For more details, refer to The Motley Fool’s disclosure policy.
