Intel's Q2 revenue and profit forecast falls short of expectations, shares plummet

Intel's projected second-quarter revenue and profit were below market expectations on Thursday, sent shockwaves through the financial arena as its shares plummeted by approximately 8%. This downturn comes amidst a backdrop of weakened demand for its conventional data center and PC chips, while it struggles to keep pace in the booming market for AI components.

The surge in demand for advanced artificial intelligence server chips has notably impacted Intel's central processing units (CPUs), long regarded as the cornerstone of data centre operations. This shift in preference has seen businesses prioritising investments in high-performance AI chips, a trend that has negatively affected Intel's market share and revenue streams.

Nvidia, propelled by its formidable graphics processing units (GPUs) and bolstered by robust software capabilities, has solidified its dominance in the AI chip market, commanding an impressive 80% share last year. Conversely, Intel's grip on the PC chip market has endured a turbulent period over the past two years, though there have been glimpses of a resurgence in early 2024.

Despite Intel suffering an $11 billion erosion in stock market value post its earnings announcement, Nvidia witnessed a staggering $40 billion surge in its valuation. This surge was buoyed by stellar performances from tech giants Microsoft and Alphabet, as they intensified efforts to expand their AI product portfolios within the cloud computing realm.

In a bid to stay competitive, Intel has ventured into AI chip development with its Gaudi series, aiming to capture a significant share of the burgeoning market. CEO Pat Gelsinger expressed optimism, projecting revenue exceeding $500 million for Intel's Gaudi AI chips this year. The recent launch of Gaudi 3 in April signifies Intel's concerted effort to challenge Nvidia's dominance in the AI chip landscape.

Gelsinger emphasised the pivotal role of enterprise customers in driving AI monetisation, envisaging a transformative impact on businesses. However, Intel's share price plunged to $32.35 in extended trading, marking its lowest point since August.

Rival firm Advanced Micro Devices (AMD) anticipates sales of AI chips worth $3.5 billion this year, underscoring the intense competition within the sector. Despite a sluggish start to the year and a tepid second-quarter outlook, Gelsinger remains upbeat, forecasting a rebound across all Intel product lines in the latter half of 2024.

The supply constraints of Intel's advanced PC chips, exacerbated by manufacturing bottlenecks, have hampered its growth trajectory. Nonetheless, Gelsinger anticipates a revival in PC sales driven by an upcoming Windows operating system upgrade and the launch of next-generation software products.

Intel's second-quarter revenue forecast of $12.5 billion to $13.5 billion falls short of analysts' expectations, signalling continued challenges ahead. Similarly, the projected adjusted earnings of 10 cents per share also undershoot consensus estimates.

While Intel's foundry business strives to rival industry leader TSMC, profitability remains a distant goal. Despite a 10% decline in first-quarter revenue from the foundry segment, Intel executives remain optimistic, projecting incremental improvements until 2030.