Intel's AI Challenges Amid Positive Revenue Projections

By Jeffrey Dastin
(Reuters)

Intel (NASDAQ:INTC)'s optimistic revenue forecasts revealed a hidden issue: the company's AI chips have fallen short of sales expectations.

Recently, Intel abandoned its forecast to sell over $500 million worth of Gaudi accelerator chips in 2024, which are designed to enhance AI application performance. CEO Pat Gelsinger cited software issues and a shift from the second to third generation of the chips as reasons for the poor uptake.

Despite the positive revenue outlook boosting Intel shares nearly 6% prior to Friday's opening, the stock price still remains over 50% lower for the year as the company struggles to capitalize on the AI boom.

The setback with Gaudi highlights Intel's ongoing challenges in the AI sector, especially after missing the mark in choosing a singular strategy to compete with Nvidia (NASDAQ:NVDA). This also reflects Intel's difficulty in fulfilling promises made to investors.

In the aftermath of the late 2022 launch of ChatGPT, which runs on Nvidia GPUs, Gelsinger was optimistic that Intel's AI chips could capture new business opportunities. However, when forecasts suggested they could sell only $500 million, he insisted on a higher projection to match Nvidia's substantial sales. Intel aimed for over $1 billion in July 2023 but lacked sufficient supply from its contract manufacturer, TSMC.

Gelsinger noted that while companies cannot convert their entire sales pipeline into revenue, he emphasized the importance of setting ambitious targets. By January, Intel projected over $2 billion in potential AI-chip deals but later scaled down expectations for 2024.

Gelsinger maintained a positive outlook for the market despite scrapping the forecast. Analysts challenged him regarding Intel's strategy, particularly the possibility of commoditization of CPU chips without competitive AI products. Gelsinger asserted the importance of CPUs in AI data centers and claimed strong interest in Gaudi from customers.

Overall, Intel reported $13.3 billion in third-quarter revenue, surpassing analysts' expectations, but also revealed a $16.6 billion loss due to impairment and restructuring costs.

Investment experts have mixed views on Intel's future, with some believing in its potential recovery while expressing concerns about Gelsinger's leadership and operational control.