Intel Earnings Preview: The Challenge of the AI Landscape
Intel (INTC) is set to announce its first quarter earnings this Thursday, highlighting the increasing demand for its chips due to the rise of artificial intelligence (AI). The company has recently experienced a shift in its fortunes as AI technology becomes more integral to computing.
Historically, Intel missed the initial surge in AI growth, primarily due to its inability to produce the necessary chips to compete with industry giants like Nvidia (NVDA). While Nvidia capitalised on the AI boom and achieved a valuation near $5 trillion, Intel is now on the verge of its own AI opportunity.
AI agents, which are semi or fully autonomous systems performing tasks on behalf of users, are fueling the demand for Intel’s central processing units (CPUs). Although AI model execution has largely centred around graphics processing units (GPUs) from companies such as Amazon (AMZN) and Google (GOOG, GOOGL), many tasks that AI agents perform—ranging from web browsing to data management—still rely heavily on CPUs. This evolution signifies a renewed relevance for Intel’s CPUs.
For the upcoming quarter, analysts expect Intel to report earnings of $0.01 per share on revenues of approximately $12.36 billion. In contrast, the same quarter last year saw earnings of $0.13 per share and revenues of $12.67 billion. The company’s Data Center and AI segment is anticipated to generate about $4.41 billion—a year-on-year increase of 6.8%. Intel noted during its previous earnings call that supply constraints had affected chip availability, driven by high demand, but improvements are expected post-Q1.
Unfortunately, Intel also grapples with the broader memory chip shortage that is inhibiting personal computer sales. The International Data Corporation predicts an 11.3% decline in the global PC market by 2026, although revenue is expected to rise by 1.6% due to higher average selling prices. Intel’s Client Computing revenue, comprising PC chip sales, is projected to hit $7.1 billion this quarter, reflecting a decrease of about 7% compared to last year.
Despite these hurdles, Intel has secured significant partnerships in Q1. Notably, the company has aligned with Elon Musk to collaborate on the forthcoming Terafab facility, which will manufacture chips for SpaceX, xAI, and Tesla (TSLA). Furthermore, Intel has announced a multiyear partnership with Google, aimed at utilising its Xeon CPUs to power AI and other workloads within Google Cloud.
In another strategic move, Intel plans to repurchase a 49% stake in a fabrication facility it had previously sold to Apollo Global Management for $11.2 billion, now acquiring it back for $14.2 billion, as per recent disclosures.
In summary, while Intel faces challenges from competition and market dynamics, it is also poised to adapt and potentially thrive in the AI-driven landscape, capitalising on new opportunities while addressing ongoing supply issues. The forthcoming earnings report will reveal how effectively Intel is navigating these changes.
