Intel’s recent announcements revealed a troubling reality for the semiconductor giant, particularly regarding its ambitions in the rapidly evolving artificial intelligence (AI) market. While the company projected optimistic revenue figures, a significant aspect of its strategy—the anticipated sales of Gaudi chips designed for AI applications—has fallen short of expectations. This oversight raises questions about Intel’s competitive positioning and strategic direction in a field increasingly dominated by rivals like Nvidia.
Intel’s CEO, Pat Gelsinger, announced on a recent earnings call that the company had to abandon its previous forecast of over $500 million in Gaudi chip sales for 2024. This decision came as a result of disappointing demand and challenges related to software integration and the ongoing transition from the second to the third generation of Gaudi chips. While the overall revenue forecast gave a temporary boost to Intel’s stock—lifting it nearly 6% in pre-market trading—it’s important to note that the stock remains more than 50% lower than its value at the beginning of the year. This decline underscores the difficulties Intel faces in capturing its share of the AI boom and successfully executing its turnaround strategy.
The decision to scrap the Gaudi sales forecast highlights ongoing struggles within Intel’s AI sector. Despite Gelsinger’s initial optimism following the explosive popularity of AI models like ChatGPT—driven largely by Nvidia’s powerful GPUs—Intel has not been able to establish a compelling strategy to challenge its rivals effectively. In the wake of Nvidia’s success, Gelsinger had expressed hope that Intel’s Gaudi chips could attract new business and bolster the company’s standing in the AI market.
Gelsinger’s leadership has often been marked by ambitious goals, but this recent setback serves as a stark reminder of the challenges Intel faces. Reports suggest that during internal discussions, Gelsinger communicated a desire for Intel to project at least $1 billion in potential sales—especially in light of Nvidia’s far superior figures. However, despite previous assertions of having a “pipeline of opportunities” exceeding $1 billion, Intel acknowledged that it lacked sufficient supply from its manufacturing partner, TSMC, to fulfill such targets.
Intel defended its ambitious projections by stating that it is not unusual for companies to convert only a portion of their pipeline into actual revenue. The firm emphasized its commitment to setting challenging internal goals, which they believe can drive performance and innovation. Nonetheless, skepticism remains. By January, Intel had informed investors that there could be over $2 billion in potential AI chip deals, and in April, Gelsinger anticipated more than $500 million in AI revenue for 2024. However, with the latest announcement, these projections now appear overly optimistic.
Analysts have been vocal in questioning Intel’s current trajectory. Vivek Arya from Bank of America pressed Gelsinger directly about the company’s strategy, particularly in a scenario where Intel’s central processing units (CPUs) could become commoditized without a competitive AI product to support them. Gelsinger defended the relevance of Intel’s CPUs in AI data centers, asserting that there is “good early interest” in the Gaudi chips and that benchmarks for their third generation are impressive.
Despite these claims, Intel’s financial results present a mixed picture. The company reported third-quarter revenue of $13.3 billion, which exceeded analyst estimates. However, it also posted a staggering loss of $16.6 billion, primarily due to impairment and restructuring costs. This financial performance has led some, like Michael Ashley Schulman, the chief investment officer of Running Point Capital, to express concerns regarding Gelsinger’s ability to deliver on his promises and control operational challenges effectively.
In conclusion, while Intel’s recent revenue forecasts may paint a picture of optimism, the setbacks in its AI strategy, particularly the disappointing sales projections for the Gaudi chips, raise serious concerns. As competition intensifies in the AI landscape, the pressure is on Intel to demonstrate a clear and effective strategy that not only aligns with market demands but also reassures investors about its long-term viability and profitability. The coming months will be crucial for Intel as it navigates these challenges and seeks to regain its footing in a highly competitive sector.
