Intel’s $100 billion gamble: Will their AI strategy be enough to turn the tide? 💰

Guerilla Stock Trading has been optimistic about Intel (INTC) despite a significant drop in its stock price, down 40% since January 2024. The decline is mainly due to Intel’s slow progress in AI compute sales compared to competitors Nvidia (NVDA) and AMD (AMD). Intel has struggled to adapt its business model, losing market share in data centers since 2021. Although the Gaudi 3 AI chip offers a new approach, it needs time to gain traction. Q1 2024 saw a 9% revenue increase, but profit forecasts and Q2 projections are weak, with flat revenue growth and reduced profits. Intel plans a $100 billion investment in U.S. manufacturing, but its immediate impact is uncertain.

Partnerships with companies like Microsoft (MSFT) and Nvidia for AI chip production are expected to boost Intel’s market share. Despite beating earnings per shareEarnings per share (EPS) is a fundamental financial metric that provides valuable insights into a company's profitability. This widely used indicator helps investors and analysts g... expectations and only slightly missing revenue targets, Intel’s stock fell due to a weaker forecast. However, recovery signs are evident in areas like the Client Computing Group and data center division, though the Foundry Services division saw a 10% revenue drop. Intel aims to dominate the AI era with advanced packaging and EUV technology, projecting significant growth by 2030.

Challenges in AI and Server Segments

Intel’s faltering stock price is primarily due to its slow traction in AI compute sales compared to competitors like Nvidia (NVDA) and AMD (AMD). These rivals have gained significant ground in the AI and server markets, areas where Intel has historically struggled to pivot its business model and product line. Since 2021, Intel’s share in the data center market has been on a downward trajectory, a segment that was once a stronghold for the company.

In response, Intel has introduced the Gaudi 3 AI chip, aiming to make a mark in the AI market. However, the ramp-up for this new product will take time, and the market remains cautious about its potential impact.

Financial Performance and Projections

Intel’s financial performance in Q1 2024 revealed a mixed picture. While the company reported a 9% increase in revenue, their profit forecasts and market guidance were disappointing. For Q2 2024, Intel projected flat revenue growth and a significant reduction in profits compared to the previous year, further unsettling investors.

Despite these challenges, Intel is planning a substantial investment of $100 billion to expand its manufacturing capabilities across the United States. The immediate impact of these investments is uncertain, and skepticism remains about Intel’s ability to execute these plans swiftly and effectively.

Strategic Partnerships and AI Market Penetration

The recent surge in AI demand, driven by advancements in machine learning and data analytics, has led Intel to form strategic partnerships with other tech companies. Notably, Intel will manufacture chips specifically for AI applications for Microsoft (MSFT), a move expected to help Intel capture a substantial share of the AI market.

Additionally, there is speculation that Nvidia might select Intel to produce its high-end semiconductors optimized for AI. Future AI graphics processors designed by Nvidia could benefit from Intel’s cutting-edge “18A” manufacturing process. This technology is seen as a key approach to chipmaking that will shrink processor sizes and reduce power consumption, potentially attracting customers and warding off competition from Taiwan’s TSMC and South Korea’s Samsung.

Earnings Report Insights

Despite beating earnings per share (EPS) expectations with $0.18 per share (beating by $0.04/share) and reporting revenue of $12.72 billion (missing by only $56 million), Intel provided a weaker-than-expected forecast for the current quarter, leading to a drop in their stock price. However, the company is pursuing a strong recovery in key areas that could drive future growth.

The Client Computing Group (CCG) posted a 31% year-over-year revenue jump, largely driven by PC chip sales. The data center division also grew by 5% year over year, with new AI chips like the Gaudi 3 beginning to reach customers. Optimism remains that revenue in this segment will accelerate as these new products gain traction.

The Foundry Division’s Role in Intel’s Future

The dark spot in Intel’s financials was the Intel Foundry Services (IFS) division, which saw a 10% revenue drop to $4.4 billion in Q1. This division has been a significant drag on overall revenue growth. However, Intel’s management is optimistic about the future, providing qualitative commentary on the Q1 call about the potential of the foundry market.

Intel projects that the foundry market will grow from $110 billion today to $240 billion by 2030, with almost 90% of this growth coming from EUV nodes and advanced packaging. Intel aims to become the largest system foundry for the AI era and the second-largest overall by 2030, leveraging its EUV High NA process technology, leadership in advanced packaging, manufacturing capacity, and systems expertise.

Foundry Market Forecast

The projected growth of the foundry market in 2024 is characterized by several key trends and figures:

1. Overall Growth: The foundry industry is expected to return to a growth trajectory in 2024 after a downturn in 2023. This recovery is driven by inventory normalization and strong demand for AI technologies. Counterpoint Research indicates a 10% QoQ growth in Q4 2023, setting the stage for continued expansion into 2024[2].
2. Revenue Projections: According to the World Semiconductor Trade Statistics, the semiconductor industry, which includes the foundry market, is expected to experience a 13.1% increase in 2024, pushing its value to $588.36 billion. This growth is a rebound from a 9.4% decline in 2023[3].
3. AI Demand: Robust AI demand is a significant driver of growth. TSMC, for instance, has raised its forecast for datacenter AI revenue, anticipating more than doubling year-over-year in 2024. The company also projects a 50% CAGR in AI revenue through 2028[1].
4. Regional Growth: The U.S. market is expected to see substantial growth, driven by initiatives like the CHIPS and Science Act, which has led to significant investments in semiconductor manufacturing and research[3].
5. Sector-Specific Trends: While AI demand remains strong, the recovery in non-AI sectors such as smartphones, PCs, and automotive is slower. However, there are signs of stabilization and mild recovery in these sectors as well[1][2].

In summary, the foundry market is projected to grow significantly in 2024, driven by strong AI demand, inventory normalization, and substantial investments in semiconductor manufacturing, particularly in the U.S.

AI Microchips Market Forecast

The forecasted market for AI microchips is projected to experience significant growth over the coming years. According to a report, the AI chip market was valued at USD 15.9 billion in 2022 and is expected to reach USD 207.4 billion by 2030, growing at a compound annual growth rateThe world of finance is replete with complex concepts, but one that stands as a cornerstone for investors seeking to gauge returns is the Compound Annual Growth Rate (CAGR). Often ... (CAGR) of 37.9% during the forecast period from 2023 to 2030[5]. This growth is driven by the increasing adoption of AI technologies across various industries, advancements in semiconductor technology, and the rise of edge computing.

Additionally, Gartner predicts that worldwide AI chip revenue will grow by 33% in 2024, reaching $71.3 billion, up from $53.7 billion in 2023, and is expected to increase to $92 billion in 2025[6]. This growth is fueled by the demand for high-performance AI chips in data centers, PCs, smartphones, and other edge and endpoint devices.

Overall, the AI chip market is poised for robust expansion, driven by technological advancements and the growing integration of AI across multiple sectors.

Data Centers Market Forecast

The data center market is forecasted to experience significant growth in the coming years, driven by various factors including the rise of online streaming services, the adoption of IoT, and the increasing demand for cloud computing and data storage solutions.

Market Size and Growth:

• The global data center infrastructure market is expected to grow at a compound annual growth rate (CAGR) of 9.58%, reaching a market size of $5.99 billion by 2029, up from $3.15 billion in 2022[8].
• The edge data center market is projected to grow from $7.2 billion in 2021 to $19.1 billion by 2026[7].

Regional Insights:

• North America is anticipated to hold a substantial share of the global data center infrastructure market due to the presence of numerous technology innovators and high demand for cloud computing and IoT technologies[8].
• The U.S. data center industry alone is valued at an estimated $99.97 billion in 2023[7].

Key Drivers:

• The insatiable desire for data to improve business performance, driven by the Internet of Things (IoT) and Industry 4.0, is a major factor[9].
• The increasing number of colocation facilities and the escalating demand for cloud networking are also significant contributors[8].
• The adoption of artificial intelligence (AI) and machine learning is expected to further drive demand for data centers, with hyperscale data centers projected to increase their rack density at a CAGR of 7.8%[11].

Energy Consumption and Environmental Impact:

• Data centers account for about 4% of global energy consumption and 1% of global greenhouse gas emissions[7].
• Cloud data centers consume 3% of the world’s energy[7].

Investment and Development:

• Data center construction reached an all-time high in 2023, with 3,077.8 Megawatts under construction, marking a 46% year-over-year increase[7].
• New development is needed to meet the growing demand, with significant interest from investors and developers in regions like Austin-San Antonio and Omaha due to land availability, power infrastructure development, and tax incentives[10].

Overall, the data center market is poised for robust growth, driven by technological advancements, increasing data demands, and strategic investments in infrastructure and energy-efficient solutions.

Insights:

1. Intel’s AI chip Gaudi 3 is crucial for its market repositioning.
2. Significant investments in U.S. manufacturing aim to bolster future performance.
3. Intel’s partnerships with major tech companies highlight strategic growth in AI.
4. Recovery signs in client computing and data centers show potential for turnaround.

The Essence (80/20)The Origins and Evolution of the 80/20 Principle The Discovery by Vilfredo Pareto In 1897, Italian economist Vilfredo Pareto uncovered a striking pattern in his study of wealth and...: Intel’s stock has plummeted due to slow AI market traction and competition, but strategic investments and partnerships aim to revive growth. Key areas for understanding include:

• AI Market Integration: Intel’s slow AI sales relative to competitors.
• Strategic Investments: $100 billion in U.S. manufacturing expansion.
• Partnerships: Collaborations with Microsoft and Nvidia to boost AI chip production.
• Product Development: Introduction of Gaudi 3 AI chip.
• Financial Performance: Mixed results with some areas showing growth potential.
• Future Projections: Aiming for significant market share by 2030 with advanced packaging and EUV technology.

The Guerilla Stock Trading Action Plan:

1. Monitor AI Developments: Track progress and market reception of Gaudi 3 AI chip.
2. Evaluate Investments: Assess the impact of manufacturing investments on Intel’s market position.
3. Follow Partnerships: Observe outcomes of collaborations with Microsoft and Nvidia.
4. Financial Review: Regularly check Intel’s financial reports and forecasts for signs of recovery.
5. Competitor Analysis: Compare Intel’s advancements with Nvidia and AMD.

Blind Spots:

• Immediate Impact of Investments: Uncertainty remains about how quickly Intel’s $100 billion investment will influence its market position and financial performance.
• Competitive Landscape Shifts: Intel’s recovery plans hinge on successful execution and market conditions remaining favorable. However, competitors like Nvidia, AMD, TSMC, and Samsung are also advancing rapidly in AI and chip manufacturing, which could outpace Intel’s efforts and diminish its competitive edge if not continuously innovated and adapted to market changes.

Intel (INTC) Technical Analysis

Price Trend and Moving Averages:

• The stock is in a clear downward trend since early March, evidenced by a series of lower highs and lower lows.
• The 200-day moving average (red line) is at 39.86, and the 50-day moving average (blue line) is at 32.81, both above the current price of 30.45, indicating a bearish trend.
• Recently, the price appears to have found some support around the 30.00 level, showing consolidation after a sharp decline.

Volume:

• There is a notable increase in volume during the price drops, particularly around mid-April and late May, suggesting strong selling pressure.
• Volume has decreased during the consolidation phase, indicating a lack of strong buying interest at current levels.

Relative Strength IndexIn the world of technical analysis, the Relative Strength Index (RSI) stands as a cornerstone tool for traders seeking insights into market momentum. Developed by J. Welles Wilder ... (RSI):

• The RSI is at 42.08, which is below the neutral 50 level but above the oversold threshold of 30. This suggests the stock is neither overbought nor oversold but leans towards the bearish side.

On Balance VolumeThe On Balance Volume indicator (OBV) is a technical analysis tool used to measure the flow of money into and out of a security over a specified period of time. It is a cumulative ... (OBV):

• The OBV has been declining, indicating that volume on down days has been higher than on up days. This confirms the bearish sentiment.

Stochastic RSIIn the realm of technical analysis, the Stochastic RSI (StochRSI) emerges as a powerful tool for traders seeking to navigate market dynamics with precision. Developed by Tushar S. ...:

• The Stochastic RSI is at 0.734, which is relatively high. However, given the broader context of the downtrend, this could signal a potential for short-term pullback rather than a trend reversal.

Average Directional IndexThe Average Directional Index (ADX) stands as a cornerstone indicator in the toolkit of technical traders, offering insights into the strength of market trends. Developed by Welles... (ADX):

• The ADX is at 22.02, which is below the 25 threshold typically used to identify strong trends. This indicates that the strength of the current downtrend may be weakening.

Chaikin OscillatorNamed after its creator Marc Chaikin, the Chaikin Oscillator stands as a formidable tool in the arsenal of technical analysts. This oscillator is designed to measure the accumulati...:

• The Chaikin Oscillator is at 30.95M, showing some accumulation. This could suggest that while the stock has been selling off, there is some buying interest emerging at lower levels.

Time-Frame Signals:

• 3 Months: Hold. The stock is showing signs of potential consolidation and might stabilize around the current levels. However, the overall trend is still bearish, and significant upside movement is unlikely without a change in market sentiment.
• 6 Months: Hold. Given the downward momentum and lack of strong bullish indicators, it’s advisable to wait for more definitive signs of reversal or stabilization.
• 12 Months: Hold/Sell. If the bearish trend continues and key support levels are broken, consider selling to avoid further losses. However, monitor for any fundamental changes or bullish technical signals that could indicate a potential recovery.

Overall, while there are some signs of potential short-term stabilization, the prevailing sentiment and technical indicators suggest caution. The downtrend remains dominant, and strong evidence of reversal is yet to be seen.

Remember, past performance is not an indication of future results. Always conduct your own research and consider consulting with a financial advisor before making any investment decisions. 🧡

Looking Ahead

In conclusion, while Intel has faced significant challenges in early 2024, there are signs of a potential turnaround. The company’s strategic investments, new product introductions, and partnerships position it to capture growth in the AI and server markets. Despite a 39.29% year-to-date decline, there is cautious optimism that Intel’s recovery is taking hold. The road ahead may be bumpy, but the company’s efforts to adapt and innovate could eventually pay off, making it a strong buy for forward-looking investors.

Frequently Asked Questions (FAQs) about Intel

General Overview

1. Why has Intel’s stock price dropped significantly in 2024?

The decline is mainly due to Intel’s slow progress in AI compute sales compared to competitors Nvidia and AMD, along with market share losses in data centers.

2. What are the main challenges Intel is facing in the AI and server segments?

Intel has struggled to adapt its business model, losing market share in data centers and lagging behind in AI compute sales compared to Nvidia and AMD.

3. How has Intel’s market share in data centers changed since 2021?

Intel’s share in the data center market has been on a downward trajectory since 2021.

4. What new product has Intel introduced to address its AI market challenges?

Intel has introduced the Gaudi 3 AI chip, aiming to make a significant impact in the AI market.

Financial Performance

5. How did Intel perform financially in Q1 2024?

Intel reported a 9% increase in revenue but had disappointing profit forecasts and market guidance for the next quarter.

6. What is Intel’s financial outlook for Q2 2024?

Intel projected flat revenue growth and a significant reduction in profits for Q2 2024 compared to the previous year.

7. How did Intel’s earnings per share (EPS) and revenue compare to expectations?

Intel beat EPS expectations with $0.18 per share but missed revenue targets by $56 million.

8. What was the performance of Intel’s Foundry Services division in Q1 2024?

The Foundry Services division saw a 10% revenue drop, contributing to overall revenue growth challenges.

Strategic Investments and Partnerships

9. What major investment is Intel planning to enhance its manufacturing capabilities?

Intel plans a $100 billion investment in U.S. manufacturing to expand its capabilities.

10. What impact is expected from Intel’s partnership with Microsoft in AI chip production?

This partnership is expected to boost Intel’s market share in the AI sector.

11. How might Intel’s collaboration with Nvidia benefit the company?

Nvidia might select Intel to produce high-end semiconductors for AI, benefiting from Intel’s advanced manufacturing processes.

12. What is the significance of Intel’s “18A” manufacturing process?

The “18A” process is crucial for producing smaller, more efficient processors, potentially attracting more customers.

Future Projections

13. What is Intel’s growth projection for the AI market by 2030?

Intel aims to dominate the AI era with advanced packaging and EUV technology, projecting significant growth by 2030.

14. How does Intel plan to leverage its manufacturing capabilities for future growth?

Intel plans to become the largest system foundry for the AI era and the second-largest overall by 2030.

15. What are the expectations for the foundry market’s growth by 2030?

The foundry market is expected to grow from $110 billion to $240 billion by 2030, with advanced packaging driving this growth.

16. How is the AI chip market forecasted to grow by 2030?

The AI chip market is expected to reach USD 207.4 billion by 2030, growing at a CAGR of 37.9%.

Data Center and AI Market

17. What is the forecast for the data center market size by 2029?

The global data center infrastructure market is expected to reach $5.99 billion by 2029.

18. How is the U.S. data center market expected to grow?

The U.S. data center industry is valued at an estimated $99.97 billion in 2023, with substantial growth expected.

19. What role does AI play in driving data center demand?

The adoption of AI and machine learning is expected to significantly drive demand for data centers.

20. How does Intel’s Gaudi 3 AI chip impact its market positioning?

The Gaudi 3 AI chip is crucial for Intel’s market repositioning, aiming to capture a significant share of the AI market.

Citations:
[1] https://www.counterpointresearch.com/insights/global-foundry-industry-in-q1-2024/
[2] https://evertiq.com/news/55650
[3] https://www.breadboard.com/post/navigating-the-semiconductor-market-boom-in-2024-are-you-prepared
[4] https://www.linkedin.com/pulse/2024-2032-global-foundry-market-growing-rapidly-3p3je
[5] https://finance.yahoo.com/news/artificial-intelligence-chip-market-projected-163000015.html
[6] https://www.techrepublic.com/article/gartner-ai-chip-revenue-2024/
[7] https://brightlio.com/data-center-stats/
[8] https://consent.yahoo.com/v2/collectConsent?sessionId=1_cc-session_69024f40-6b96-4410-a45e-e69a4bf32836
[9] https://www.gray.com/insights/the-data-center-industry-is-booming/
[10] https://www.cbre.com/insights/books/us-real-estate-market-outlook-2024/data-centers
[11] https://www.us.jll.com/en/trends-and-insights/research/data-center-outlook