Intel looks to level up in AI race

0:03Good morning from the Financial Times. Today is Monday, June 1st and this is your FT News briefing. Intel is going back to basics with a new AI chip, and the inflation shock from the Iran war might not be as severe as the one we saw in 2022. Plus, the EU is watching warily as China flexes its manufacturing might in Morocco. There is nervousness in Brussels and certainly a desire to send a signal that they don't want Morocco and indeed other North African countries, Egypt, Algeria, to become proxy surrogates for Chinese dumping. I'm Victoria Craig, and here's the news you need to start your day.

0:56Intel is hoping to secure its place in the AI infrastructure race. By the end of this year, it plans to start shipping a new chip that will power artificial intelligence platforms, one that will be cheaper to produce than ones made by its rivals, NVIDIA and AMD. Michael Acton has the details on this one. He covers the semiconductor industry for the FT and joins me now. Hi, Michael. Hi. All right. So Intel told you that it's, quote, starting with the basics in a bid to challenge its rivals here. Just walk us through what the plans are for the company. So this is really about Intel's failure about four years ago to launch a competitive product with the graphics processing units that NVIDIA has risen to power on.

1:38So a graphics processing unit is a chip needed to train and run AI models. And it really sort of eclipsed the traditional central processing units or CPUs that Intel has dominated in in the past. And this is Intel positioning itself to launch its own GPU. And there are certain aspects of this chip that make it interesting. One is the memory. So Intel is using a different type of memory from the extremely expensive high bandwidth memory that goes into chips from the rivals like NVIDIA and AMD. It's also bypassing the need for liquid cooling infrastructure. So if you're building a data center, in theory, you wouldn't need to build this huge network of water pipes and things to make it work.

2:16And then there's this sort of looming idea that Intel might actually build this chip finally in-house in its own factories in the US, which also brings down the costs. It also hasn't ruled out the idea that some version of this chip could sell in China. And that's a really interesting dynamic given the tensions between Washington and Beijing, whether Intel could succeed where NVIDIA and AMD have really struggled in offering some sort of price-effective chip in China. Lots still to be decided then. Where does this position Intel in the global AI race? So what we know is, and Intel's candid about this, that they're not trying to build a GPU that goes toe-to-toe with NVIDIA and AMD on training the frontier models that we're familiar with.

2:54So the chat GPTs of the world, the Claude's of the world, they're really looking to target the infrastructure for running the models. So it's early days, but Intel's looking to sort of build a platform of its own. When we're talking about platform, a lot of people just think about chips. But really, it's not just about the chip. It's about building a server that chip goes into. It's about all of the wires and connecting technology that goes into those data centers that allows the chips to communicate with each other. And then a layer of software on top of it that lets you actually run workloads on it.

3:22So it's an incredibly complex thing. It's not just about the chip. That's something that NVIDIA has done to great effect. And this is Intel positioning itself to kind of do the same. It doesn't need to own the entire market, but it does need to grab a slice of that hundreds of billions of dollars that tech companies are pouring into this infrastructure. Now, all of this is part of a strategy from the new Intel boss, Liboutin, which investors love. The stock is up more than 200 percent this year. But how high are the stakes for him at this point? So the narrative has definitely shifted around Intel.

3:53Things were looking dire even just a year ago around numerous things. And it's really a sort of wait and see element. So there are two things that LitBoo really has to deliver on. One is to land a big outside customer for chip manufacturing. So that would be potentially an Apple. That still hasn't happened. And two, it has to have a competitive AI chip product that really creates a massive new revenue stream for them. And failure on either of those fronts could throw it back into financial difficulty. So Intel's not safe, but it's certainly on the front foot for the first time in years. Separately, Michael, in the world of artificial intelligence, there were murmurings over the weekend that Microsoft and Intel rival NVIDIA are now teaming up.

4:34What do we know about that possible partnership? So NVIDIA and Microsoft lent credence to reports over the weekend that they're preparing to launch a major new PC chip. And if true, that would really show NVIDIA and Microsoft partnering to go head-to-head with Apple in the premium PC space, so the sort of MacBook Pro. That's really interesting because NVIDIA historically has been a graphics card supplier. Now we're thinking about how can NVIDIA push further and further into the consumer PC space and start competing against the apples of the world. So that's very interesting. So many developments coming fast and furiously out of this space.

5:08Michael Acton in San Francisco for us. Thanks so much for your time. Thanks, Vissara.

5:17Well, speaking of AI, investors have certainly embraced it, but young people are much more skeptical. A recent Gallup poll showed about half of Gen Z in the U.S., that's people born between 1997 and 2012, say they do use generative AI at least once a week, but 31 % say that AI made them feel angry. That is up nearly 10 percentage points from a year ago. The FT spoke with young people across the world who described feeling dependent on and frustrated with the technology. Software developers said they're concerned that they could even be replaced, while students think AI is hollowing out learning and creativity.

5:59Gen Zers also said they thought AI could make them more productive, creative, and employable, but now they worry it just might make humans less valuable. instead.

6:15It takes a licking and it keeps on ticking. That is how Citigroup's global chief economists describe the world's resilience to the impact of the Iran war. Indeed, FT analysis of economic projections shows the inflation shock might not be as severe as the surge in prices following Russia's full-scale Ukraine invasion. Data show that on average, inflation estimates increased by about eight-tenths of a percentage point since the U.S.-Iran war began three months ago. That is much lower than the 2.3 percentage point rise economists predicted three months into Russia's invasion in 2022. The modest figure now comes despite the warnings that the world is facing its worst-ever energy crisis due to the near closure of the Strait of Hormuz.

7:01That's in part because of optimism the war will end soon and oil and gas price rises are not as bad. as four years ago.

7:15China is investing billions of dollars to ramp up auto manufacturing for the European market and bring it closer to the continent. That is setting off alarm bells in Brussels. Peter Foster, the FT's global trade editor, joins me now to chat about this trend. Hi, Peter. Hi. So Morocco has really become a sort of epicenter of this concern. Just walk us through what exactly is happening there. Well, two things. One is that Morocco has seen a massive uptick in investment from China, about$6 billion over the last three years. The second issue is that Morocco has a trade deal with the European Union, and therefore, things that are made in Morocco can enter the European Union without paying a tariff.

7:58Now, in the case of an automobile or automobile parts, very often the EU has tariffs on those goods that are coming direct from China. And so the worry is that Morocco might be becoming a backdoor where stuff from China goes into factories in Morocco, gets to some degree made into something else and then shipped on tariff free into the EU. And it's more about the potential scale of this, given the scale of the Chinese investment, I think, that is unsettling officials in Brussels. And we'll talk more about Brussels concerns about all of this. But first, you were recently in Morocco, seeing some of these companies set up shop there.

8:35How much investment are we talking about here? So I went to an investment conference in Casablanca where nearly 100 Chinese companies were listening to the pitch from the Moroccan government about why they should come and invest in Morocco. There are tax breaks. There is plentiful labor, green energy, and of course, access to those trade deals that I just mentioned. So Moroccan business groups, so they're getting delegations two to three a week. Now, what does that translate into? Well, we went out about 25 miles south of Tangier, the big port city, where, you know, rising out of these scrubby hills is a new industrial park where a lot of these Chinese companies are building factories, both to create parts that are going to be shipped into the European automobile supply chains, but also parts that could go to the two European car makers, There's Renault, the French maker, and Stellantis that owns Peugeot and other brands that have factories in Morocco.

9:35As you said, Peter, the EU is watching all of this with growing angst. So what exactly can the bloc do about it? So the first thing they can do is they can impose quotas and actually put up what they call anti-dumping duties. And indeed, they did that on a case that was settled last year on aluminium wheels. And they said that these aluminium wheels were being subsidised both by the Moroccans, unfairly, and by the Chinese through this thing called the Belt and Road Initiative, which is China's outbound investment strategy scheme. And they slapped 40 % odd tariffs on these aluminium wheels. So they can do more of that.

10:13The second tricky thing is that under a trade deal, in order for a good that's made in Morocco to take advantage of the EU-Morocco trade deal and enter the EU tariff-free, the good has to be actually made in Morocco. So I think Morocco is cognizant of the fact that it is walking a tightrope. And so what Morocco will say is, look, this is not a backdoor. This is a legitimate industrial partnership which will be of value to the European Union. So does this sort of simmering tension risk longer term permanent damage with the EU? So we are still in the fairly early stages. Many of the factories are still under construction.

10:56There is nervousness in Brussels and certainly a desire to send a signal that they don't want Morocco and indeed other North African countries, Egypt, Algeria, to become proxy surrogates for Chinese dumping. So to some degree, we have to wait and see what happens over the next decade. But you can see how the economic space is going to become more and more contested, I think is probably the best word to use. Peter Foster, the FT's Global Trade Editor. Thanks for walking us through this. My pleasure.

11:32Before we go, Colombians went to the polls yesterday to decide who will replace President Gustavo Petro. The election, which could go to a runoff, is a critical one as Colombia is facing worsening security and economic issues. You can follow the election results live on FT.com and read more on all of the stories in today's podcast for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news.

12:35Thank you. Avalara, agentic AI tax and compliance with confidence.

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