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Spoils from the artificial intelligence chip boom have so far been limited to just one chip company: Nvidia. Chip manufacturing giant Intel is missing out. A hopeful upgrade from investment bank Mizuho has pushed the company’s share price to a 17-month high. But the catalyst is not AI.
Sales in Intel’s data centre and AI unit dropped more than 10 per cent in the past quarter compared with the previous year. Over the past nine months, the company has reported $985mn in net losses. No wonder the stock trades at a sales multiple one-ninth the size of Nvidia’s.
But Mizuho expects Intel to launch new products for the data centre market, perhaps clawing back market share taken by rivals such as Advanced Micro Devices. A simultaneous revival in PC sales thanks to slowing inflation might provide a revenue kick-start. There is also potential for a boost from the planned spin-off of the field programmable gate array business.
Intel can lay claim to bad luck. Chief executive Pat Gelsinger took over in 2021 with a bold plan to turn the company around and build new US factories to make semiconductors, known as fabs. The expansion of homegrown fabs will also boost business for equipment makers such as Applied Materials. But development is expensive and takes years. In the meantime, the AI hype is encouraging tech giants such as Microsoft to develop their own chips that could compete with Intel processors.
Unfortunately, rising costs have coincided with a drop in Intel’s central PC business. Free cash flow turned negative last year. There is no reason to expect it to turn positive next year or the year after that — even as the company targets a $10bn reduction in annual costs.
On the plus side, there is the prospect of government funding. It is not yet clear how big a slice of this Intel can expect. Nonetheless it is expected to make up a serious dent in the $39bn subsidy earmarked for advanced new chip factories.
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