Intel, once the most valuable U.S. chipmaker, faces an uphill battle as it tries to stay relevant in the artificial intelligence race.
On Friday, Intel saw its stock drop 9%, a day after the Santa Clara-based company said it might pause or discontinue its upcoming chip manufacturing process technology known as 14A if it can’t land a “significant” customer.
“We continue to see a lack of meaningful revenue growth drivers ahead, as Intel lacks the products to participate in AI,” wrote Tristan Gerra, a senior research analyst at Baird Equity Research, in a note.
The company’s stock plunge also comes as the semiconductor company, which reported quarterly earnings on Thursday, is laying off thousands of workers and slashing expenses.
Intel plans to end the year with 75,000 “core” employees, which exclude those working for subsidiaries. That’s down from the 99,500 “core” employees Intel had at the end of 2024.
The rising popularity of AI chatbots such as OpenAI’s ChatGPT that can generate text and images has set off a fierce competition among some of the world’s largest tech companies including Google and Meta.
Some chipmakers like Nvidia have benefited from this race because its high-end chips are considered the backbone of AI.
Nvidia has grown rapidly, riding the AI boom to become the first publicly traded company to reach a market valuation of $4 trillion.
Founded in 1968 at the start of the PC revolution, Intel continued to fall behind after Apple’s 2007 release of the iPhone.
Late Apple co-founder and chief executive Steve Jobs once criticized Intel as being “really slow” and “not very flexible,” according to Walter Isaacson’s biography of Jobs.
In 2020, Apple started to power its laptops with its own chips, transitioning away from Intel processors. That year, Nvidia surpassed Intel as the most valuable U.S. chipmaker. Intel’s market cap was $98.71 billion as of the market close on Thursday.
While AI has bolstered demand for more powerful and efficient semiconductors, only a handful of companies have reaped the rewards, according to an analysis by McKinsey & Company, a consulting firm. In 2024, the top 5% of companies — led by Nvidia — generated nearly all of the semiconductor industry’s economic profit.
“A small part of the industry is riding the value creation boom and generating economic profit at unprecedented levels. But most of the industry is facing a very different reality,” the analysis said.
Lip-Bu Tan, who became Intel’s chief executive in March, has been charting a path forward for the struggling chipmaker. Like other tech company leaders throughout California, he is also trying to rein in costs by laying off workers and cutting expenses.
“I know the past few months have not been easy,” he wrote in a note to employees on Thursday. “We are making hard but necessary decisions to streamline the organization, drive greater efficiency and increase accountability at every level of the company.”
Among its cost-cutting plan: scrapping previously planned projects in Germany and Poland and moving assembly and test operations in Costa Rica to larger sites in Vietnam and Malaysia. Intel said it’s committed to investing in the United States, but will slow construction in Ohio in part to “ensure our spending is aligned with demand.”
Intel is also focusing on its “core product portfolio” and AI offerings to better serve customers.
“There are no more blank checks,” Tan wrote. “Every investment must make economic sense.”
Intel’s net loss for the second quarter widened to $2.9 billion, or 67 cents per share, compared to a loss of $1.6 billion, or 38 cents per share, a year earlier.
Revenue was flat at $12.9 billion. Analysts, on average, were expecting adjusted earnings of 1 cent per share on revenue of $12 billion, according to a poll by FactSet.
Associated Press writer Barbara Ortutay contributed to this report.
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