Intel stock posted a weaker-than-expected set of Q2 2024 earnings last week, and provided a tough outlook for Q3, guiding revenue of $12.5 billion to $13.5 billion, well below estimates of over $14 billion, as it continues to lose market share in both the PC and server space. Following the tough earnings report, Intel noted that it intends to cut over 15% of its workforce, which could amount to over 15,000 layoffs while aiming to slash costs by as much as $10 billion by next year. While these steps will help Intel manage its profitability, the key challenge will be scaling up its revenues at a time when generative artificial intelligence dominates the computing and semiconductor market narrative.
Experts feel that the US chip giant missed a significant opportunity that could have reshaped its future. About seven years ago, Intel had a chance to invest in OpenAI, a nascent non-profit research organization exploring the then-novel field of generative artificial intelligence. Had Intel seized this opportunity, the company’s trajectory in the AI era might have been vastly different.
Between 2017 and 2018, discussions took place between Intel and OpenAI about a potential investment. Intel was offered the opportunity to purchase a 15% stake in OpenAI for $1 billion. Additionally, there was talk of acquiring another 15% stake if Intel agreed to provide hardware to OpenAI at a cost price. However, Intel ultimately declined the deal. According to sources familiar with the negotiations, the primary reason for this decision was then-CEO Bob Swan’s skepticism about the near-term market viability of generative AI models. He wondered whether such technologies would become commercially successful soon enough to justify the investment.
At the time, OpenAI was keen on Intel’s investment as it would have reduced its dependency on Nvidia’s chips and allowed the organization to build its own infrastructure. Yet, the deal faltered because Intel’s data center division was reluctant to produce hardware at cost, further complicating the potential partnership.
Intel’s decision not to invest in OpenAI has had far-reaching consequences. OpenAI went on to achieve groundbreaking success with the launch of ChatGPT in 2022, and the company is now valued at approximately $80 billion. This missed opportunity is a stark contrast to Intel’s current struggles. Once a dominant force in the chip industry during the 1990s and 2000s, Intel now struggles to help compete in the AI sector.
Intel’s recent second-quarter earnings report, which resulted in a dramatic stock price drop of over 25%, highlights the company’s ongoing difficulties. For the first time in three decades, Intel’s market value has fallen below $100 billion. This is a far cry from its former status symbolized by the “Intel Inside” slogan, which once epitomized quality and innovation.
In contrast, Nvidia, with a market capitalization of $2.6 trillion, has successfully transitioned from video game graphics to AI chips essential for developing and operating advanced generative AI systems like OpenAI’s GPT-4. Additionally, AMD, valued at $218 billion, has also surpassed Intel in the AI space.
Despite these setbacks, Intel remains optimistic about its AI future. CEO Pat Gelsinger has promised that Intel’s third-generation Gaudi AI chip, slated for release in the third quarter, will outperform competitors. Gelsinger also mentioned that Intel’s upcoming Falcon Shores AI chip is expected to launch in late 2025. According to an Intel spokesperson, the company is making significant strides in design and process technology innovation. It is building a product pipeline to capture a larger share of the AI market.
