Intel’s wild week leaves Wall Street more uncertain than ever about chipmaker’s future
Intel CEO Patrick Gelsinger speaks at the Intel Ocotillo Campus in Chandler, Arizona, on March 20, 2024.
Brendan Smialowski | AFP | Getty Images
It was quite a week for Intel.
The chipmaker, which has lost over half its value this year and last month had its worst day on the market in 50 years after a disappointing earnings report, started the week on Monday by announcing that it’s separating its manufacturing division from the core business of designing and selling computer processors.
And late Friday, CNBC confirmed that Qualcomm has recently approached Intel about a takeover in what would be one of the biggest tech deals ever. It’s not clear if Intel has engaged in conversations with Qualcomm, and representatives from both companies declined to comment. The Wall Street Journal was first to report on the matter.
The stock rose 11% for the week, its best performance since November.
The rally provides little relief to CEO Pat Gelsinger, who has had a tough run since taking the helm in 2021. The 56-year-old company lost its long-held title of world’s biggest chipmaker and has gotten trounced in artificial intelligence chips by Nvidia, which is now valued at almost $3 trillion, or more than 30 times Intel’s market cap of just over $90 billion. Intel said in August that it’s cutting 15,000 jobs, or more than 15% of its workforce.
But Gelsinger is still calling the shots and, for now, he says Intel is pushing forward as an independent company with no plans to spin off the foundry. In a memo to employees on Monday, he said the two halves are “better together,” though the company is setting up a separate internal unit for the foundry, with its own board of directors and governance structure and the potential to raise outside capital.
Intel CEO Pat Gelsinger speaks while showing silicon wafers during an event called AI Everywhere in New York, Thursday, Dec. 14, 2023.
Seth Wenig | AP
For the company that put the silicon in Silicon Valley, the road to revival isn’t getting any smoother. By forging ahead as one company, Intel has to two clear two gigantic hurdles at once: Spend more than $100 billion through 2029 to build chip factories in four different states, while simultaneously gaining a foothold in the AI boom that’s defining the future of technology.
Intel expects to spend roughly $25 billion this year and $21.5 billion next year on its foundries in hopes that becoming a domestic manufacturer will convince U.S. chipmakers to onshore their production rather than relying on Taiwan Semiconductor Manufacturing Company (TSMC) and Samsung.
That prospect would be more palatable to Wall Street if Intel’s core business was at the top of its game. But while Intel still makes the majority of processors at the heart of PCs, laptops, and servers, it’s losing market share to Advanced Micro Devices and reporting revenue declines that threaten its cash flow.
‘Next phase of this foundry journey’
With challenges mounting, the board met last weekend to discuss the company’s strategy.
Monday’s announcement on the new governance structure for the foundry business served as an opening salvo meant to convince investor that serious changes are underway as the company prepares to launch its manufacturing process, called 18A, next year. Intel said it has seven products in development and that it landed a giant customer, announcing that Amazon would use its foundry to produce a networking chip.
“It was very important to say we’re moving to the next phase of this foundry journey,” Gelsinger told CNBC’s Jon Fortt in an interview. “As we move to this next phase, it’s much more about building efficiency into that and making sure that we have good shareholder return for those significant investments.”
Still, Gelsinger’s foundry bet will take years to pay off. Intel said in the memo that it didn’t expect meaningful sales from external customers until 2027. And the company will also pause its fabrication efforts in Poland and Germany “by approximately two years based on anticipated market demand,” while pulling back on its plans for its Malaysian factory.
TSMC is the giant in the chip fab world, manufacturing for companies including Nvidia, Apple and Qualcomm. Its technology allows fabless companies — those that outsource manufacturing — to make more powerful and efficient chips than what’s currently possible at volume inside Intel’s factories. Even Intel uses TSMC for some of its high-end PC processors.
Intel hasn’t announced a significant traditional American semiconductor customer for its foundry, but Gelsinger said to stay tuned.
“Some customers are reluctant to give their names because of the competitive dynamics,” Gelsinger told Fortt. “But we’ve seen a large uptick in the amount of customer pipeline activity we have underway.”
Prior to the Amazon announcement, Microsoft said earlier this year it would use Intel Foundry to produce custom chips for its cloud services, an agreement that could be worth $15 billion to Intel. Microsoft CEO Satya Nadella said in February that it would use Intel to produce a chip, but didn’t provide details. Intel has also signed up MediaTek, which primarily makes lower-end chips for mobile phones.
U.S. President Joe Biden listens to Intel CEO Pat Gelsinger as he attends the groundbreaking of the new Intel semiconductor manufacturing facility in New Albany, Ohio, U.S., September 9, 2022.
Joshua Roberts | Reuters
Backed by the government
Intel’s biggest champion at the moment is the U.S. government, whish is pushing hard to secure U.S.-based chip supply and limit the country’s reliance on Taiwan.
Intel said this week that it received $3 billion to build chips for the military and intelligence agencies in a specialized facility called a “secure enclave.” The program is classified, so Intel didn’t share specifics. Gelsinger also recently met with Commerce Secretary Gina Raimondo, who is loudly promoting Intel’s future role in chip production.
Earlier this year, Intel was awarded up to $8.5 billion in CHIPS Act funding from the Biden administration and could receive an additional $11 billion in loans from the legislation, which was passed in 2022. None of the funds have been distributed yet.
“At the end of the day, I think what policymakers want is for there to be a thriving American semiconductor industry in America,” said Anthony Rapa, a partner at law firm Blank Rome who focuses on international trade.
For now, Intel’s biggest foundry customer is itself. The company started reporting the division’s finances this year. For the latest quarter, which ended in June, it had an operating loss of $2.8 billion on revenue of $4.3 billion. Only $77 million in revenue came from external customers.
Intel has a goal of $15 billion in external foundry revenue by 2030.
While this week’s announcement was viewed by some analysts as the first step to a sale or spinoff, Gelsinger said that it was partially intended to help win new customers that may be concerned about their intellectual property leaking out of the foundry and into Intel’s other business.
“Intel believes that this will provide external foundry customers/suppliers with clearer separation,” JPMorgan Chase analysts, who have the equivalent of a sell rating on the stock, wrote in a report. “We believe this could ultimately lead to a spin out of the business over the next few years.”
No matter what happens on that side of the house, Intel has to find a fix for its main business of Core PC chips and Xeon server chips.
Intel’s client computing group — the PC chip division — reported about a 25% drop in revenue from its peak in 2020 to last year. The data center division is down 40% over that stretch. Server chip volume decreased 37% in 2023, while the cost to produce a server product rose.
Intel has added AI bits to its processors as part of a push for new PC sales. But it still lacks a strong AI chip competitor to Nvidia’s GPUs, which are dominating the data center market. The Futurum Group’s Daniel Newman estimates that Intel’s Gaudi 3 AI accelerator only contributed about $500 million to the company’s sales over the last year, compared with Nvidia’s $47.5 billion in data center sales in its latest fiscal year.
Newman is asking the same question as many Intel investors about where the company goes from here.
“If you pull these two things apart, you go, ‘Well, what are they best at anymore? Do they have the best process? Do they have the best design?'” he said. “I think part of what made them strong was that they did it all.”
— CNBC’s Rohan Goswami contributed to this report
Meta CEO Mark Zuckerberg looks on before the luncheon on the inauguration day of U.S. President Donald Trump’s second Presidential term in Washington, U.S., Jan. 20, 2025.
Evelyn Hockstein | Reuters
Mark Zuckerberg’s plan is to make Meta the market leader in artificial intelligence. Investors will want to know how President Donald Trump’s tariffs-heavy trade policies will impact that strategy.
Those answers could start to come as soon as this week as Meta’s AI strategy takes center stage when the company hosts its first Llama-branded conference for AI developers on Tuesday then reports its latest quarterly earnings the next day.
Already, tech companies are starting to talk about the potential impact they’re bracing for as a result of the Trump tariffs.
Intel Chief Financial Officer David Zinsner said Thursday during the chip giant’s first-quarter earnings call that U.S. trade policies “have increased the chance of an economic slowdown, with the probability of a recession growing.” Meanwhile, Google CFO Anat Ashkenazi said that day during a first-quarter earnings call that the tech giant remains committed to its $75 billion investment in capital expenditures, or capex, this year, but also acknowledged that the “timing of deliveries and construction schedules” could cause some quarter-to-quarter spending fluctuation.
For now, analysts expect Meta to follow Alphabet’s lead and remain firm in its plan to spend as much as $65 billion in capex for AI infrastructure this year when it reports earnings Wednesday. Some analysts believe Meta could even raise the figure because AI is a core priority for the company.
“We do not expect META to cut its CapX guidance of $60B-$65B in 2025, for its GenAI infrastructure, because they see this as an important 10-year investment, we believe,” Needham analysts wrote in a research note published Wednesday. “However, tariffs add risks of upward cost revisions.”
Investors will also be monitoring Meta’s LlamaCon event at its Menlo Park, California, headquarters for any signs that its AI investments are having an immediate business impact. This will be the first time Meta hosts a developer conference specifically for its Llama family of AI models.
“Investors want to see ROI on all these AI investments, and while Meta has shown clear benefits from leveraging AI to improve its products and drive faster revenue growth, it’s been hard to quantify those benefits,” Truist Securities analyst Youssef Squali told CNBC.
Meta in April released a couple of its new Llama 4 models, which Meta Chief Product Officer Chris Cox previously said can help power so-called AI agents that can perform tasks for users via web browsers and other online interfaces.
It’s critical that Meta keep improving Llama to create a major business involving AI agents that companies can use to interact with their customers within apps like Facebook and WhatsApp, William Blair research analyst Ralph Schackart said.
“Meta has an early mover advantage at scale in a multi-trillion dollar market,” Schackart said in an email. “We believe Meta is very well positioned to leverage its billions of global users across multiple platforms.”
Meta is unlikely to curb its Llama investment any time soon, but should eventually consider doing so if it fails to generates enough money to justify its costs, said Ken Gawrelski, a Wells Fargo managing director of equity research.
“We do believe that over time Meta needs to continue to evaluate whether Llama needs to be competitive with the leading-edge models,” Gawrelski said. “This is a very expensive proposition and thus far, unlike Google, Meta does not directly monetize its model in any material way.”
Chris Cox, Chief Product Officer at Meta Platforms, speaks during The Wall Street Journal’s WSJ Tech Live Conference in Laguna Beach, California on October 17, 2023.
Patrick T. Fallon | AFP | Getty Images
Meta AI and the consumer
Analysts are also following the Meta AI digital assistant. That’s because the ChatGPT rival represents the second pillar of Zuckerberg‘s AI strategy.
Zuckerberg in January said he believes 2025 “is going to be the year when a highly intelligent and personalized AI assistant reaches more than 1 billion people, and I expect Meta AI to be that leading AI assistant.”
In February, CNBC reported that Meta was planning to debut a standalone Meta AI app during the second quarter and test a paid subscription service, in which users could pay monthly fees to access more powerful versions like users can with ChatGPT.
Although Meta’s enormous user base across its family of apps gives Meta AI an advantage over rivals like ChatGPT in terms of reach, they may not interact with Meta AI in the same way they do with rival chat apps, said Cantor Fitzgerald analyst Deepak Mathivanan.
Gawrelski said that people may not want to use Meta AI within Facebook and Instagram if all they want to do is passively watch the short videos that Meta algorithmically recommends to their feeds.
“This is why a separate Meta AI, where Meta could clearly articulate its use case and value proposition, could be helpful,” Gawrelski said.
A standalone Meta AI app could help the company better market the digital assistant and distinguish it from rivals, said Debra Aho Williamson, founder and chief analyst for Sonata Insights.
“ChatGPT has such wide brand awareness, that it’s become a moat that is soon going to be very hard to overcome,” Williamson said.
The X logo appears on a phone, and the xAI logo is displayed on a laptop in Krakow, Poland, on April 1, 2025. (Photo by Klaudia Radecka/NurPhoto via Getty Images)
Nurphoto | Nurphoto | Getty Images
Elon Musk‘s xAI Holdings is in discussions with investors to raise about $20 billion, Bloomberg News reported Friday, citing people familiar with the matter.
The funding would value the company at over $120 billion, according to the report.
Musk was looking to assign “proper value” to xAI, sources told CNBC’s David Faber earlier this month. The remarks were made during a call with xAI investors, sources familiar with the matter told Faber. The Tesla CEO at that time didn’t explicitly mention any upcoming funding round, but the sources suggested xAI was preparing for a substantial capital raise in the near future.
The funding amount could be more than $20 billion as the exact figure had not been decided, the Bloomberg report added.
Artificial intelligence startup xAI didn’t immediately respond to a CNBC request for comment outside of U.S. business hours.
The AI firm last month acquired X in an all-stock deal that valued xAI at $80 billion and the social media platform at $33 billion.
“xAI and X’s futures are intertwined. Today, we officially take the step to combine the data, models, compute, distribution and talent,” Musk said on X, announcing the deal. “This combination will unlock immense potential by blending xAI’s advanced AI capability and expertise with X’s massive reach.”
Read the full Bloomberg story here.
— CNBC’s Samantha Subin contributed to this report.
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