Instant Reaction: Intel's Revenue Shatters Wall Street Estimates

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1:31Carol Massar:Bloomberg 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. Here's how Ian King, who's been covering this company and this sector for many years, put it. Intel delivered a surprisingly strong revenue forecast for the current period, indicating that a surge in data center spending is helping fuel the chip makers turnaround. The Outlook underscores Intel's gains with data center customers, which are clamoring for chips to satisfy demand for AI computing. Sales in that segment soared 59 % last quarter, more than double the pace of Intel's overall right now.

2:18Carol Massar:Chief Executive Officer Lepoutin saying the CPU is taking off in data centers. All right, let's get to it. Back with us is, of course, Mandeep Singh. with our Bloomberg intelligence team. He oversees tech research here, global tech research for our intelligence team. This looks like a really strong report. It is, and it's led by something we all expected, data centers. That's where you are seeing the demand. We saw that in Google's results yesterday. And look, the CPU side is something that Intel has had a monopoly over the years. They obviously lost the plot, But now they seem to be coming back.

2:58The only thing I'm not very sure about is how it translates into sustainable demand, because everyone else is also making CPUs, whether it's NVIDIA, whether it's Google, you know, even the likes of AMDs, they're all focused on CPUs. So Intel is not a monopoly that it used to be. And that's where the expectations going in the quarter were really low. And they did beat that. So then why are people buying Intel's rather than AMD's or NVIDIA's? Is it a commodity, this part of the business? So if you're just looking for a CPU, Intel still has the foundry where they make the most CPU's and it makes sense for anybody to go to Intel.

3:46If you're looking for systems, which is what Google said, they're selling TPU systems now. A TPU system has got an accelerator. It's got CPU. It's got networking. It's got everything. That's what all these companies are doing with their data centers now. They're selling a complete system where CPU is one of the building blocks. Intel is not selling you a system. They're just selling you a chip. Kind of says to me, not a great business plan.

4:14Carol Massar:Is it? So how do you make sense whether or not? I think it's too early to compare Intel to the likes of NVIDIA or what Google told us with their TPU systems. It's still a very early stage opportunity for Intel on the data center side. Again, expectations were really rock bottom. So they came out, they beat that data center number by 700 million. Great. But if I look at the sustainability of what Google plans to do or what NVIDIA plans to do, Intel is not in that category yet. And that's where you need for them to execute much better on the data center side in terms of having a GPU, having more on the networking side, having a systems play, which is what we are hearing from AMD, by the way.

5:06That's what AMD is after. That's what Broadcom is after. So I'm not ready to put Intel in that basket of companies that have systems opportunities. But they need to get there? I think it's a big challenge. I mean, you have to remember Intel underperformed for a period of five, six years where they just had things going down. So for them to come back, it's going to take a while. I mean, the foundry side is where they could get help from the U.S. government stake. And, you know, they could land more customers. in terms of founder usage. But in terms of, again, comparing them to someone like NVIDIA, we are far off from that.

5:46Should we compare them to NVIDIA? I mean, NVIDIA is making their own CPUs, and NVIDIA will tell you they already generate up to$20 billion by selling CPUs as part of their system. So NVIDIA has already surpassed Intel in terms of the CPU side of that equation.

6:06Carol Massar:So what, to Tim's question or Tim's point, Mandeep, like what is, again, the role of Intel in the future in the world of semiconductors? There's still value there? There's still a good business there? Yeah, so think of it as traditional data centers versus AI data centers. For all the traditional data centers, Intel is great because they have those servers that companies were using that they need to refresh. And now Intel has the ability to give them the latest servers that, by the way, you need latest CPU servers to run these agentic workloads. So when you deploy AI, so far it was just training for inferencing, you need CPUs.

6:53And that's where if an enterprise is looking to refresh their old servers, they'll go for Intel. They won't buy NVIDIA systems because you don't need to do that for your traditional data centers. You buy NVIDIA systems for your AI data centers, which need a lot more power, which have different specs altogether.

7:13Carol Massar:So who's their biggest competitor then in that particular universe? AMD. AMD. Yeah. Okay. But AMD just talked about how they are focused on that systems opportunity too. So everyone realizes the larger opportunity is AI data centers. It's not your traditional data centers. So that's where the sustainability of this growth. I mean, we are coming off a very low base. Right. So yeah, they grew, you know, whatever, 60%. That's great. But can you sustain 80 % type growth that NVIDIA has shown they can over a period of time? And that's the real question here. So this business that seems to be kind of unique to Intel for those who are kind of doing upgrades, right, on their data centers for inferencing.

8:00Carol Massar:I mean, at some point, does that go away and people are more focused on the bigger data centers? Or no, companies are going to need it, right? You need more compute. The question is, how much is NVIDIA going to sell in terms of CPUs versus how much opportunity is left for Intel as a standalone CPU provider? Because remember, NVIDIA is bundling everything. Google CPUs are bundling everything and saying CPUs are just one component of agentic workloads. So why would enterprises keep buying from Intel where they have to get other components from other providers? The stock is up. I mean, this was the third best performing stock in the S &P 500 in the first half of the year.

8:45But this month, it's just gotten crushed. And part of that has had to do with just how much it's run high. I mean, this was a stock that was on June 22nd at$141 per share. Now it's at about$100 a share as of the close. If you take into account the move higher right now, it's at about$111 per share. What was the weakness this month that had investors thinking that, OK, the bar is actually pretty low for this report? Expectations are low. Overall, semis as a complex, I think, corrected. People took a lot of profits. We even saw the memory names go down. So I don't think there was anything unique to Intel over there.

9:24But with that being said, things have come back on the semi side very quickly. It feels like we had somewhat of a correction, and then things rebounded fairly quickly. And the Google report with them raising CapEx, I'm expecting every hyperscaler will raise CapEx. Well, guess what? All the semiconductor names will catch a bit because of the CapEx increases. Okay, you mentioned Alphabet, and we're supposed to be talking about Intel right now, but you mentioned Alphabet, so we'll go there. Alphabet just got crushed today. Why? Because they're raising their CapEx. But raising CapEx is good. It's good for the semiconductor companies.

10:00not for someone like Alphabet, right? But in the past, it's sometimes been good for a company like Alphabet because it indicates demand. And when they spend that money to build infrastructure, that infrastructure will be used and generate revenue. Yeah, and they are showing that in their cloud segment. We talked about how fast it's growing 82%. But market will always get nervous when you are talking these big numbers. I mean, we are talking about trillion dollars in CapEx by these five big hyperscalers next year. That's the 2027 consensus number.

10:32Carol Massar:Can we say, because I think people think about the spend on AI and the build kind of akin to building out energy markets, right? It's expensive to do this stuff and you have to think about the longer term trends. But have the tech sector been burned enough like the oil patch? Yeah. I mean, semiconductors certainly have seen the booms and busts. They haven't. I mean, you drew the comparison to the energy markets and the oil market. Those are regulated companies. Imagine after all this spend, if these companies became regulated. And guess what? You can't really maximize your profits anymore. That would be very interesting.

11:13So there's always that risk with these large-angle models. The government may decide these two companies are too powerful in terms of the models they have developed. They need to, you know, limit their hold. And that's a big risk when it comes to this CapEx wave.

11:31Carol Massar:We already have a government that's looking at the power usage and thinking about what their responsibility is, right? Some of the tech companies in terms of data centers. I want to bring in Ed Ludlow, the host of Bloomberg Tech. He's standing by in San Francisco. Ed, you spoke to Dave Zisner, the Intel CFO. You also spoke to Lit Boutin, the CEO of Intel, along with Ian King and some reporting on the terminal. What did you learn from them in their commentary that sort of adds to what we heard in terms of numbers from this quarter?

11:56Ed Ludlow:Yeah, I mean, this is a CPU story, right? There's just very high data center demand for CPU. And that is the game that Intel's in. It's the part of the AI story that they have been able to get and hold on to. And, you know, right now Intel's in a position where it's doing everything it can to improve its production. You know, they are in a place where demand for their CPUs in the data center server context is outpacing their improving supply. So they're doing a better job, but they're still leaving a bit of money on the table because they just cannot meet 100 percent of the orders that are being placed.

12:34Ed Ludlow:That is, as Lit Bu put it, a good problem to have. But right now, if you look at the aftermarket trade, completely in line with what Mandeep's been outlining as well, it is the capital expenditure story once again that's kind of moving the needle here.

12:47Carol Massar:Because people have to buy, and they have to buy from Intel. Is that it? But Intel has the foundry capacity to produce that. So if they're complaining about supply, to me, that's surprising. You've got all the fabs. You're not going to TSMC to make those CPUs, right? So I'm a little surprised there. What would be the question then that you would be asking Lipu? Like, why is there wafer shortages for your own CPUs? Like, you have the foundries that are based here in the U.S. Why can't you ramp them up faster to meet the demand that you see? What? Do it. Just ramp it up. Come on. Ed Ludlow, though, you know, as we continue to go through these numbers, what else is jumping out for you?

13:34Ed Ludlow:Yeah, well, just on Mandeep's point, I think, you know, a quarter ago when I spoke to Lip on the phone, he was very honest that they had not been doing a good job. Like they were not very good at building their own products. And that is a problem. And I think what he's saying now is that's getting better. They are improving their own supply, but they're not yet there yet. You know, it's a process. I think the other thing as well, you know, with Intel, you know, the Foundry business, we still don't have anything concrete on which technology companies around the world are customers of Intel for Foundry and their latest processes.

14:11Ed Ludlow:But if you think about the CapEx guide, so what Dave's into the CFO told me is that CapEx this year will now be higher, about$20 billion. The previous guide was about$18 billion, and it would also represent year-on-year CapEx growth. But he also absolutely underscored that Lit Boutan is a very cautious guy. He does not deploy capital and increase capex unless he's sure he's going to get a return on it. And so that's what they're trying to argue for now, that they see demand enough where they're willing to spend on the tooling side specifically, not the space side, to increase that capacity because they think they have the customer demand there.

14:49But Mandeep, as Ian King has reminded us over and over again, this stuff can be cyclical. And Intel has learned the hard way that the investments don't always pay off. Do they have to tell investors a different story that this time we know that where we're spending the money is the right place to spend the money? I mean, right now, I think... Or is everybody just throwing money at everything and it's fine? Everyone realizes the demand is huge. And, you know, if there's one common thread across all the narratives we hear is that demand far outstrips supply. So why would you not be doubling down at this time, especially for something where you had a monopoly in the past until there is a product related reason?

15:39And like I said, you know, if it's that systems aspect where you know companies are not going to buy CPUs from you because they want more systems level type of product, then I understand. But without that, I see no reason why they wouldn't be aggressive on CapEx just because there is demand and they have the fabs.

15:58Carol Massar:Well, Ed Ludlow, I mean, Liputan being cautious and careful, might that be, you know, not his downfall, I'm not going to say that, but problematic. When if the demand is there, as we were just talking about with Mandeep, you know, you want to spend to kind of make sure you don't miss out on that.

16:15Ed Ludlow:Yeah, I mean, they, again, are going on the data they have available, which is customer demand. You know, they have this line at Intel, which is so consistent on, which is like when a customer signs up to use our latest chip making process, we don't announce it. We leave it to the customer. Problem for them is none of the customers have announced it. all they'll say is that they signed loads of deals loads of LTAs they call them in the first six months of this year and they were like okay so we have the deals that gives us confidence to invest I think you know I think we'll learn more overnight right all of the sell side notes will come out whatever questions get asked on the call give you a sense of the psychology of where the sell side's at but it is astonishing that the stock's up 12 percent in after hours given it was up 172 % going into today's close.

17:05Ed Ludlow:It's like, but it got beat up, but Ed, it was at what over 130 a few weeks ago.

17:10Carol Massar:Yeah. It was down 30 % or so in the last month. Right.

17:12Ed Ludlow:Yeah. I mean, you know, one week a market does not make, one session a market does not make, but, um, you know, to answer Carol, you know, there was a point in history where Intel was the absolute best at this and they had 60 % margins. They they're not near that. Right. Right. There's still like a lot of stuff to fix here. And I don't think they're saying that they're close to that. They're just saying that that they're making progress.

17:32Carol Massar:Final thoughts as we wrap up from you, Mandeep. I mean, I would like to see a backlog number alluded to LTAs. Like with Micron, they signed LTAs, but they also gave visibility into pricing and how much that backlog is in terms of those LTAs. So if Intel really has that sort of visibility with their customers, the LTAs, then they should give a backlog number so that SREIT can model that, you know okay this is how cpus will ramp up to me really it's about sustainability of growth here once the numbers get normalized because we are coming off a really low base here no that's a really good point right you got to think about where we're coming from ed final

18:13Ed Ludlow:thought uh just that uh you know they'll be pushed on giving more detail on customers something that did not come up and i really you know i think it's interesting is you know we haven't discussed TeraFab and the partnership that's in place with Musk. And, you know, it's unlike LitBoo to kind of talk openly about that. But I would say that ASML got asked about it. And last night, Musk was name checking Micron all over the place. So it could come up. And to me, that's, you know, Musk is news. And there we go.

18:43Carol Massar:No, never makes news. Good stuff, guys. Hey, thank you so much. Of course, our Ed Ludlow out there in San Francisco. He's host of Bloomberg Tech. and our Mandeep Singh right here in our studio. He's Bloomberg Intelligence Global Head of Technology Research, you guys. Thank you. Thank you.

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