Intel’s Volatile Week: Why Is the CPU Giant Soaring?

Tech giant Intel (INTC) has been in the headlines over the past couple of days. Its share price has soared despite having experienced “one of the most tumultuous periods in its 56-year history.”

So why is this contradiction occurring, and what should you know about it?

Intel’s Recent Woes

First, it is important to familiarise oneself with the challenges and hurdles faced, and these are as follows:

• Falling Sales: Intel experienced a 14% decline in revenue for 2023 compared to the previous year, with significant decreases across various sectors, including a 20% drop in Data Centre and AI revenues. 

• Rising Artificial Intelligence (AI) Competition: Intel is struggling to keep up with competition such as Nvidia and its AI technology, which has established a strong position in the AI market. Intel's efforts to enter this sector with its Gaudi AI accelerators,for example, are proving challenging. 

• Market Conditions: The post-pandemic slump in PC sales has adversely affected Intel’s Client Computing Group, leading to a prolonged decline in shipments. 

• Concerns Over Foundry Services: Intel’s attempts to expand its foundry operations are costly, and many analysts have expressed doubts about their viability. Some suggest the company should consider exiting this sector to improve profit margins. 

• Acquisition Rumours: Intel has become a potential target for acquisition, with Qualcomm (QCOM) indicating interest. This speculation adds uncertainty regarding its strategic future and could lead to regulatory issues. 

• Need for Customer Acquisition: While recent agreements with Amazon (AMZN) and Microsoft (MSFT) are promising, Intel must secure a larger client base to effectively compete with larger firms like TSMC (TSM).

Given the aforementioned challenges, it is no surprise that Intel has lost about 50.6% of its value since the beginning of 2024. 

Is Intel Making a Comeback?

Despite the notable hurdles, Intel was able to soar by 3.5% as of 12:30 p.m. ET. on Wednesday, 25 September, and here’s why:

The latest gains can be largely attributed to the introduction of Intel’s new AI products, notably the Xeon 6 CPU and the Gaudi 3 AI accelerator. These products are designed to enhance the company’s position in the competitive AI and data centre markets, where Intel has been lagging behind leaders like Nvidia.The Xeon 6 is claimed to offer double the performance of its predecessor and is specifically optimised for AI applications, while the Gaudi 3 boasts notable throughput improvements and a compelling price-performance ratio compared to Nvidia’s offerings, making it attractive to potential clients. 

As such, as the focus on AI technologies intensifies, opportunities are emerging for firms that can provide efficient and powerful hardware, and Intel is seeking to capitalise on this demand despite facing stiff competition. The positive initial reception to these product launches has resulted in a temporary uptick in stock prices, reflecting optimism regarding the company’s potential for recovery and growth.

Nonetheless, it is important to note that past performance is not indicative of future results, and only time will reveal whether the recent positive momentum can be maintained.

Other Tech News

Besides Intel, traders may want to keep tabs on the latest moves from other tech giants and  chip companies like Micron and Nvidia.

Micron’s AI Gains

On Wednesday, Micron (MU) experienced significant movement, with its stock rising 14% after the announcement of a positive earnings forecast. 

The company expects first-quarter revenues to be between $8.5 billion and $8.9 billion, surpassing analysts’ predictions of $8.3 billion. Executives credited this optimistic outlook to a more favourable pricing environment and strong demand for memory chips, particularly for AI-related data centres.

Furthemore, CEO Sanjay Mehrotra highlighted that Micron is well-positioned within the memory and storage sector, describing it as an exciting period driven by advancements in AI. The company reported fiscal fourth-quarter revenues of $7.75 billion, reflecting an impressive 93% increase year-on-year and exceeding analyst expectations. 

Moreover, its collaboration with Nvidia in supplying memory chips for GPUs has further solidified its market standing. This positive performance coincides with a recovery in the semiconductor sector, supported by rallies in tech stocks and broader market stimuli, which have helped to boost market confidence following a disappointing period for other chipmakers.

Nvidia’s Sustained Growth

AI darling Nvidia also saw gains on Wednesday, rising by about 2%. The gain came after a report predicted "unprecedented" levels of investment in AI. 

Interestingly, according to Consulting firm, Bain, companies will need to make significant investments in technology infrastructure to keep up with the AI boom, with future data centre costs potentially rising to between £10 billion and £25 billion. This increase in expenditure is expected to provide a considerable boost to data centre operators and hardware suppliers. 

Additionally, the report estimated that Nvidia could achieve £10 billion in revenue from government AI investments in 2024, a remarkable jump from nothing last year. 

As traders seek clarity on the sustainability of this spending, Nvidia’s stock continued to rise, particularly after CEO Jensen Huang seemed to have concluded his recent share sales. 

Nonetheless, these are all projections, and only time will tell what actually lies ahead for Nvidia, Micron, and Intel. 

Conclusion

In summary, Intel's stock price volatility amid significant challenges underscores the complexities of the tech sector. Despite experiencing declining sales and intense competition from Nvidia, along with uncertainties about its foundry services and potential acquisitions, the launch of new AI products seem to have generated some optimism. This has led to a temporary rise in share prices. Similarly, Micron and Nvidia have benefitted from positive forecasts and anticipated substantial investments in AI technology. However, as the industry evolves, the future remains uncertain, and it will take time to determine whether these companies can maintain their momentum and overcome ongoing challenges.