The wave of strong results from big tech companies proves once again that beating this quarter means meeting your guidance, or lack thereof.
intel
INTC
The company beat expectations in its latest earnings report, but provided guidance that was well below expectations. The stock sold as investors tried to understand why the guidance was so soft. With all the hype around artificial intelligence and Intel’s improved operations, why wasn’t the company’s performance more robust and its guidance more optimistic?
There were several obvious reasons. One is Mobileye Global
MBLY
Forecasts were revised downward, and stock prices plummeted. Intel’s significant investment and position in Mobileye certainly influenced its own guidance. In addition, spending on networks and the Internet of Things has also declined.
These reasons have been cited by investors and analysts, but arguably the data center business is where the alarm bells have sounded. Growth was good this quarter, but rival Nvidia
NVDA
has expanded margins and exceeded revenue records at a breakneck pace, effectively declaring itself the undisputed champion of AI infrastructure. Intel’s failure to present a more optimistic and positive outlook for data center solutions built around AI was met with absolute scorn.
Does Intel have a chance against these challenges, or did they miss the mark with AI?
Let’s start with AI. 2023 was the year of the graphics processing unit (GPU), and the undisputed winner was Nvidia. Nvidia was the only choice because there was a demand for AI training and all the largest cloud providers had invested heavily in infrastructure to support AI. Some estimate that Nvidia’s GPU market share reaches his 98%, which actually looks like his Intel back when AMD was at its most successful.
AMD
was in jeopardy, and Intel enjoyed near-total monopoly in both data centers and PCs.
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AI on PC
But it’s not just data centers where AI will play a role. A new generation of personal computers is being developed with the aim of creating an entirely new supercycle. Many analysts, including myself, expect these PCs to hit the market in the second half of 2024. These PCs run large language models that keep data private on the device and can be used for generative AI applications without interacting with the cloud. — Reduces latency, improves security, increases efficiency, and puts AI at the fingertips of PC users, just as we are accustomed to on our mobile devices.
Another question is whether the AI market is truly mature, and the answer is “of course not.” We are in the early days of AI. In 2023 he saw Nvidia stock go parabolic The training infrastructure was certainly exciting, but 2024 will be focused on implementation. This is about AI inference and applications that can combine both generative AI and more traditional machine learning tactics and techniques to maximize the value of data, whether in consumer or enterprise applications. Become.
Intel still has about 75% of the data center computing market and about the same percentage of the PC market, making it well-positioned when it comes to AI. It will probably be a few years before the company develops a GPU that can compete with what Nvidia and AMD are developing, so Intel could grow into his AI market and steal his double-digit market share from Nvidia. It is possible that it is.
Reasons for optimism
Here are the specific reasons behind our bullish stance on Intel, and how we think the stock’s low valuation, along with market conditions and the growing need for all types of computing, are good for the company’s long-term outlook. .
1. CEO Pat Gelsinger has regained confidence, spirit and leadership style, which bodes well for Intel. He made a difficult decision. The company is moving away from less profitable businesses and focusing on strategic alignment and mobile. At the same time, he has worked hard to make Intel the national factory of the United States. In other words, Intel makes its own chips and also aims to use its equipment to make other companies’ chips as well.
2. Long-standing relationship with the channel. This has a double meaning. First, this channel relies heavily on Intel both in terms of design distribution and implementation. Intel is one of the most successful companies in terms of strategic marketing, cooperatives, and building MDF programs, and partners rely on Intel to provide their businesses with the products and margins they need to succeed. Now it looks like this.
As long as Intel can deliver a competitive product, the slow-moving landscape is likely to remain in place for some time and not be completely disrupted. Given that the company is doing better than ever before, it has ceded massive market share to AMD and Nvidia due to operational flaws and lack of presence in key markets. However, over the next few years, most of these items will likely be corrected.
Finally, my personal favorite bull case for Intel is the growth of its foundry business. Yes, there are reports that fab construction will take several years, but I think those delays are to be expected.
Intel is actively capitalizing on the opportunity to become a national foundry in the United States and Western countries. In effect, of course, the company is working on an integrated manufacturing strategy. But it’s also attracting attention from more fabless chip designers here in the U.S. for nationalistic and strategic reasons to provide supply, and the company is looking to expand into packaging foundries as well as process foundries. It’s been successful and that’s what drives that part. Percentage of businesses that record revenue over the past few quarters.
Given the uncertainty surrounding China and the need for more diversity in supply chains, there’s no better bet than Intel for a company that can partner with Marvell Technologies, Nvidia, Qualcomm, AMD, and others to provide AI chips. AI chips were the main cause of the shortage in 2021 and 2022.
It’s easy to make a bearish case for Intel, but some analysts don’t think it’s a positive for the company at all. All these points can also be refuted from the other side. But that being said, there are cases of bulls. The value of Intel’s stock doesn’t even come close to that of its competitors. And the company still has significant market share and deep ties to the channel that are difficult to break. At the very least, this warrants some optimism.
Daniel Newman is CEO and Principal Analyst at The Futurum Group, which provides research, analysis, advice, and consulting to ServiceNow, Intel, NVIDIA, Microsoft, Amazon, IBM, AMD, and other technology companies. is. He does not hold any position with either him or the company mentioned in this article. Follow him on X @danielnewmanUV.
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