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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Key Takeaways:
- AI Fuels Intel’s Turnaround:Strong demand for AI data centre chips drove Intel’s fastest revenue growth in 15 years, signaling a potential inflection point for the chipmaker’s ambitious comeback strategy.
- Strategic Manufacturing Investment:Increased capital expenditure and robust foundry services revenue underscore Intel’s commitment to its IDM 2.0 strategy, positioning it as a critical player in the global semiconductor supply chain beyond just design.
- Navigating a Complex Landscape:Despite a headline GAAP loss due to investment volatility and ongoing competitive pressures from rivals like Nvidia and AMD, Intel’s performance highlights the evolving dynamics of the AI infrastructure market, where CPUs are gaining importance for ‘inference’ workloads.
Intel, once a dominant force that many analysts had written off, saw its stock surge by over 5 per cent on Thursday following an earnings report that showcased its fastest revenue growth in a remarkable 15 years. This resurgence is largely attributed to the insatiable demand for chips powering artificial intelligence (AI) data centres, injecting much-needed momentum into the company’s multi-year financial turnaround.
The chipmaker announced revenue of $16.1 billion for the three months ending June, a substantial 25 per cent increase year-on-year. Looking ahead, Intel’s forecast for the current quarter, projecting $15.8 billion to $16.8 billion, comfortably exceeded Wall Street’s consensus expectations, providing a strong signal of continued growth trajectory amidst a volatile macroeconomic climate.
This positive performance marks a significant pivot for the US semiconductor giant, which has endured several challenging years marked by manufacturing delays, market share losses, and an identity crisis. The current administration’s backing, echoing support from the previous Trump administration, for its costly push to regain its status as America’s only world-class processor chip maker, has provided a crucial strategic and financial lifeline. This reflects a broader geopolitical imperative to onshore critical technology manufacturing, exemplified by initiatives like the CHIPS Act.
Further bolstering investor confidence, Intel also significantly upped its planned capital spending for this year from $18 billion to $20 billion, with forecasts pointing to even higher spending extending into 2027. This aggressive CapEx strategy is a cornerstone of CEO Pat Gelsinger’s “IDM 2.0” vision, signaling robust investment in manufacturing capacity and process technology on the expectation of securing new, high-volume foundry customers. In a market constantly battling supply chain fragilities and geopolitical risks, such investments are viewed not just as growth drivers but also as national security imperatives.
While Intel shares had enjoyed a spectacular rally to all-time highs earlier this spring following bumper earnings three months prior, they had retreated around 25 per cent in the past month. This pullback, mirroring a broader correction across other semiconductor stocks, reflected growing investor anxiety regarding the long-term sustainability and valuation multiples of the AI rally. However, Thursday’s after-hours trading saw the stock reclaim some of that lost ground, suggesting renewed confidence in Intel’s specific execution.
“AI is driving unprecedented demand for compute, and as we continue to execute, Intel is well-positioned to capture sustainable growth across both its chip design and manufacturing business,” stated Pat Gelsinger, Intel’s chief executive. This sentiment resonates with the market’s current narrative, where AI is seen as the primary catalyst for the next wave of technological expansion and enterprise IT spending.
The company’s revenue growth for the June quarter was predominantly fuelled by surging demand and strategic price adjustments for Intel-designed chips, with its product revenue hitting an impressive $15.1 billion, significantly above estimates of $13.6 billion. This indicates strong traction for its core computing offerings, especially within the enterprise and data centre segments.
Critically, Intel’s Foundry Services (IFS) revenue, which underpins its ambitions as a major contract chip manufacturer, also beat expectations, reaching $5.8 billion, a robust 31 per cent increase from a year ago. This performance is vital for Intel’s strategic pivot to compete with industry giants like Taiwan Semiconductor Manufacturing Company (TSMC) and Samsung Foundry, attracting external customers to its advanced manufacturing facilities.
The Data Centre and AI (DCAI) business segment, which encompasses the server chips crucial for the infrastructure that trains and runs AI models, was a standout performer, soaring 59 per cent to $6.3 billion. This figure comfortably surpassed the $5.6 billion analysts expected, according to Visible Alpha, underscoring Intel’s strategic success in capturing a significant portion of the burgeoning AI infrastructure market, particularly in the realm of AI inference.
While adjusted net income rose to a healthy $2.2 billion, it’s important to note that net income under the generally accepted accounting principles (GAAP) standard swung to an $11 billion loss. This significant GAAP loss was primarily attributed to volatility around shares held in escrow under Intel’s investment deal with the US government, which are treated as future obligations until released. This accounting nuance, though substantial, does not detract from the operational strength demonstrated by the adjusted figures.
Having faced an uncertain future only a year ago, Intel is now demonstrating tangible progress, gaining ground thanks to surging demand for its central processing units (CPUs) and the promise of new, high-profile clients for its semiconductor manufacturing business. The company, alongside other prominent chip designers such as AMD and Arm, has highlighted a greater demand for CPUs for the infrastructure needed to run AI applications through a process known as “inference” – the deployment and execution of trained AI models.
This shift is noteworthy because CPUs have recently grown in importance relative to the graphics processing units (GPUs), which are highly specialised in the massive parallel computations needed to *train* advanced AI models and which dominated the initial stages of the AI infrastructure boom. While Nvidia remains the undisputed leader in AI training GPUs, Intel is strategically positioning its CPUs and upcoming AI accelerators to capitalize on the vast and growing inference market.
The renewed emphasis on CPUs for AI inference was further validated by Intel’s competitor, AMD. Its chief executive, Lisa Su, on Thursday, significantly upped the company’s projections for how large the CPU market will be by the end of the decade to a staggering $220 billion, from a recent $120 billion estimate. This revised outlook underscores the immense market opportunity that Intel is actively pursuing.
Beyond market dynamics, the political landscape continues to play a pivotal role. The US government has thrown its weight behind Intel as the nation’s primary contender to match Taiwan’s TSMC as a maker of top-flight chips. This strategic alignment was solidified by a deal struck with the US government last year, which included the government taking a 10 per cent stake in the company, reflecting a deep commitment to national semiconductor independence.
Pat Gelsinger has not only navigated these complex political waters but has also secured multibillion-dollar investments from industry titans like Nvidia and SoftBank. Furthermore, Intel has announced plans to collaborate with Elon Musk on his ambitious “Terafab” manufacturing project, all while rigorously pursuing company-wide efficiency cuts to optimize its operational structure. This multi-pronged approach signals a serious intent to regain technological leadership.
Looking ahead, Intel aims to directly challenge Nvidia and AMD with its own AI accelerator chip later this year, a critical move to compete across the entire spectrum of AI hardware. Simultaneously, its foundry arm is aggressively seeking to lure big manufacturing clients, such as Apple, away from TSMC, a monumental task that, if successful, could reshape the global chip manufacturing landscape. While former US President Donald Trump in June pre-emptively announced that Apple would start using Intel as a manufacturer – a claim neither company has officially confirmed – the persistent rumours highlight the strategic importance of this potential partnership for Intel’s long-term foundry aspirations.
Market Impact:
Intel’s strong earnings report and optimistic outlook are likely to reverberate throughout the semiconductor sector, offering a much-needed boost to investor sentiment regarding the longevity and breadth of the AI rally. While Nvidia remains the AI darling for training workloads, Intel’s performance, particularly in data center and AI, could signal a broadening of the AI infrastructure investment cycle, benefiting companies involved in CPU-centric inference, enterprise hardware, and even memory and storage solutions. The increased CapEx also suggests sustained demand for semiconductor manufacturing equipment, providing tailwinds for capital equipment providers. Furthermore, Intel’s commitment to its foundry business reinforces the critical importance of domestic chip manufacturing, potentially solidifying support for further government incentives like the CHIPS Act. This report could encourage a re-evaluation of valuation multiples across the broader tech sector, differentiating between pure AI speculation and companies demonstrating tangible, AI-driven revenue growth, potentially shifting investor focus towards diversified hardware providers capable of addressing various facets of the AI ecosystem.