Instant Reaction: Intel Gives Strong AI-Fueled Outlook

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1:28Bloomberg Audio Studios. Podcasts. Radio. News. This is a breaking news update from Bloomberg. Instant reaction and analysis from our 3 ,000 journalists and analysts around the world. I'm just looking at shares of Intel and we are seeing movement there. Up close to 15 % after hours. Let's go to it. Kuntan Sabani is with us. He's Bloomberg Intelligence Senior Semiconductor Analyst out there in the Bloomberg San Francisco Bureau. Kunjan, good to have you here. Gosh, investors like it. Tell us what you think is, are they right in terms of their response? They are. We like it, too. And thankfully, I mean, we had sort of previewed in our Intel preview that we're expecting double-digit strong beat and raise, and it did come through.

2:17So that's great. I mean, look, we are seeing a resurgence in terms of CPU, specifically server CPU demand due to agentic AI and inference workloads, especially in the AI head nodes, which are the CPUs that sit alongside the GPUs. We are also we are surprised to actually see strong PC or client segment beats as well. There were some concerns around the growing memory constraint and memory pricing could impact the PCN market. So we are going to listen closely about what they have to say about second half outlook there. But overall, really good results. The best thing stands out is the gross margin beat.

2:55Remember, Intel is supply constrained. So this higher demand is letting them fill up factories more and really helping with the gross margins there. Yeah, let's go to some of these. Intel shares are up higher right now. It was up as much as 17 % earlier, about 15%. The company says it's not commenting on deals with external customers. It'll increase spending on new machinery. If we take a step back and just think about where this company is in a transition that has been many, many, many years in the making, where would you say they are in this transition? They have been doing everything correct since Libouton took the helm.

3:32First thing that it is normalized capex spend and not spend beyond where they didn't have orders. They have normalized opex spend. Finally, now the end markets are also becoming a tailwind for them. So it's all about execution now. I don't know the external customers, no matter how much nice and shiny the headlines are, that still will need work. That still will take at least a year or two to get baked into the estimate. So they just have to keep executing well. Hopefully, then market tailwinds continue to stay with them, gives them good cash flow from operations. A few other headlines, 18A and 14A progress ahead of expectations.

4:11they see PC market declining in the second half. AI business grew double digits year over year, double digit year over year growth for DCAI expected to continue. What about the inference chips that everybody, or the inferencing that's going on? Where are they? I mean, is that where they need to be focusing? Are they making progress in that area? Should they be? I mean, so like I said, the inferences is definitely helping the demand of the CPU server chips, which they still have a lion's share in, right? That's their bread and butter. When it comes to other sort of accelerator chips in terms of inference, unfortunately, they don't have much traction there, but that is something that they have been making deals.

4:56One example is the deal with Sambanova, and they've also announced they might be coming out with their own new accelerator chips to attack that inference challenge. So that is something more of an optionality upside, but definitely the strength in CPU ROM inference is still helping them right now. Just for fun, Carol, and because you can slice and dice numbers any way you want. You can. I went back and looked at Intel's returns going back to the beginning of 2025, so the beginning of last year. Yeah. Up 233 % since then, beating NVIDIA up 49%. So outperforming NVIDIA from the beginning of last year.

5:32Just, you know, look, if you go back a few years, NVIDIA would destroy it. I love that you went there. Khunjan, if the government hadn't taken their position in Intel, would it be up so much? Would we be so enthusiastic about Intel? Would they be having this kind of report without it? I can't comment what the stock would have done. I can comment this. Look, the government taking the stake has not impacted anything fundamental so far, right? It's not like the stake is driving revenues for them. It did help in terms of liquidity, but the CapEx spending was already normalized. They didn't get the money from government.

6:08I don't know what could have changed so far in the business, whether it's on the revenue line side item or CapEx side of things. So it did definitely help with sentiment and morale boosting for sure. Anything missing? Question on the call that you're going to be looking out for real quickly. I think the headline about, again, what the PC, how much of a weakness in PCs we expect, because it still is the biggest portion of their revenue. So they do get definitely impacted by that weakness if it continues to grow stronger. All right, so appreciate it. Kunjan, thanks so much. Kunjan Sabani, he's our senior semiconductor analyst at Bloomberg Intelligence out there in our San Francisco Bureau.

6:45Our next guest, usually out there in our San Francisco Bureau. He's back here in the Bloomberg Interactive Brokers Studio. We're talking about Ed Lodlow. Shares at Intel right now up by more than 14%. Shares just surging. The company giving the strong sales forecast for the current period. The signal is that the company's beginning to benefit from the build-out of AI infrastructure. Big time. Ed Ludlow is with us from Bloomberg Tech. Ed, you've looked at this company for a long period of time, especially during this turnaround over the last few months. How's it doing? Well, so Ian and I just had a good, pretty long phone call with Lit Boutan and Dave's into the CFO.

7:20And we have a lot of answers, actually. You know, when there were so many headlines that hit, it's hard to see what the real driver was. I don't... Obviously, the revenue guide, really important, you know, for the current period. The story is really simple. cpu demand the xeon uh server processor is really really big and so they are now in what they would describe as the enviable position where they can divert supply to feed that market um kunjan was just talking about the pc market or the client market we can talk a little about a bit about that there are some unique factors there but basically uh demand is strong it is growing and they are not yet able to meet it and and that is a good position for intel to be in one thing i would say by the way but you want to be able to meet it right you want to be able and and so this was the story quarter to quarter what is the lit boutan effect what is him becoming ceo and changing how the company works actually mean it means not leaving any money on the table you know finding the cpus that are coming from finding the cpus to meet the demand that's out there and they're doing their absolute best for sure now margins were really good in the quarter gone first quarter not against history.

8:29You know, Intel's a company that used to have margins at 60%. Now we're at 37.5 % or maybe slightly beyond that on an adjusted basis. But I think what was so interesting is this is financial jargon, but they were honest that that's just because revenues were higher. You know, they're not necessarily finding the secret sauce yet on profit. Because the demand is strong, the supply isn't there, they can charge more. Yeah, and so Kunjan poses a question why I'd like to hear more about the PC market. This is what Intel sees in the PC market. In the first part of this year, the PC makers, the client group, were able to build up supply of memory chips.

9:07Remember, the backstory is that memory is being claimed by the data centers. You know, it's very similar, the type of memory chip that goes into a PC that goes into a server. The problem is, as Intel sees it, that in the second half of this year, they're going to run out of that inventory of memory. And they're going to have to be buying in the market spot prices. and that as far as intel sees it means half and half the second half of this year the pc market will decline that's the explanation it's the behavior of the the client group itself the pc makers and what they have or have not been able to do in building up inventories and supply of memory chips interesting and i want to go back to this question that carol asked kunjan about the u.s investment yeah it is it's just it's it is an interesting time for for economic statecraft in the U.S.

9:50I mean, we are the third largest shareholder right before NVIDIA, actually. Did the investment, I mean, is it even a possible question to answer? Did the U.S. investment fundamentally change this company? It was a big support for the CEO. Kunjan talked about morale. I mean, remember that it was not the only, if you look at it from this perspective, it was not the only balance sheet strengthening exercise that Lit Buu's done. NVIDIA? Right, NVIDIA. He's looked at the private markets or looked at working with private equity on projects. The goal was to strengthen the balance sheet to allow them to be nimble, do the things that they wanted to do.

10:27As for US manufacturing, that's a different story, right? They don't name their Foundry customers. There's a lot of question marks over Foundry. But what was so interesting is I asked Litbutan about Elon Musk. And I was like, last night on his own earnings call, Elon Musk name checked you and said, we will use Intel's 14A process, which on paper would be the first time anyone said that they'll use Intel's 14A process. and he declined to say anything about that. He was like, it's up to the customers to decide if they want to talk about that. We don't comment. Put that to one side. But what he said was, and what Dave Zinsa said is, they think they'll get more out of working with Elon Musk.

11:03Then Elon Musk and his TerraFab project will get out of Intel. In other words, Elon's really good at stuff, process, eliminating barriers and inefficiency. And that was their answer. We think we're going to really benefit from being in this partnership with Elon Musk. he's really good at that.