Intel’s long and hard fall from grace is no secret. After a brutal year for both the company and its stock, however, shares of one of Silicon Valley’s original giants have surged 14% after the beleaguered chipmaker announced a deal with Amazon to produce advanced AI chips.
Intel has a long-running partnership with Amazon Web Services, the biggest cloud service provider in the world. Now, the two companies will co-invest in a custom semiconductor known as a “fabric chip” that will be built in a new factory under construction outside Columbus, Ohio. Intel also announced its struggling foundry business, which has fallen well behind the likes of TSMC, will become an independent subsidiary with the ability to raise outside capital.
Earlier in the day, the Biden administration had officially revealed it would award Intel up to $3 billion in CHIPS Act funding as part of an effort called the Secure Enclave, which aims to ensure a steady supply of cutting-edge chips for defense and intelligence purposes. That’s in addition to a $8.5 billion grant awarded to the company in February for several major construction projects, including the plant in Ohio.
More challenges await former Silicon Valley giant
After a big Monday of news, Intel’s long-suffering stock surged 8% in extended trading before rising another 6% as of midday Tuesday. The stock is still down over 50% year-to-date as investors await further signs of a recovery they're hoping for under CEO Pat Gelsinger.
Once the biggest chipmaker in the world, Intel’s market cap now sits below $100 billion, outside the industry’s top 10 as the likes of Nvidia, Broadcom, and even Texas Instruments have surged far ahead. The company’s recent performance also stands in contrast to another legacy tech name in Oracle, which has revitalized itself and seen its shares rise over 60% in 2024.
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Monday appears to be a step in the right direction, but Bank of America managing director and senior analyst Vivek Arya said the board’s updates still left more questions than answers. While the AWS win sounded impressive, he wrote in a note published Tuesday morning, Intel has already supplied the cloud giant with CPUs, or computer processing units, for a long time.
That market, specifically traditional PC chips, has historically been Intel’s bread and butter business. It’s faltered, however, under competition from Advanced Micro Devices, or AMD, whose cheaper and more efficient ARM-CPUs have caused Intel to lose market share. When it comes to advanced AI chips, meanwhile, Intel has been nowhere near Nvidia GPUs, or graphic processing units, which are all but essential for companies training GenAI models.
Simply put, “they’re in trouble,” Baird managing director and tech strategist Ted Mortonson said of Intel last week. On Monday, the company said it was more than halfway to its target of slashing 15,000 workers by the end of the year.
It's clear Monday’s news, however, gave investors some solace.
