Intel Faces Challenges Amid Booming AI Chip Market

Since the public release of ChatGPT on Nov. 30, 2022, companies such as Nvidia, Advanced Micro Devices, and Broadcom have generated share price returns well in excess of 100%.

These stocks are all part of the semiconductor industry, which plays a critical role in advancing generative AI technology. Given this context, it’s not surprising that they have seen such impressive gains while participating in this AI boom.

However, not every chip stock has experienced similar success. Since ChatGPT’s launch, shares of Intel (NASDAQ: INTC) have declined by 22%.

In the following sections, I will outline three major concerns surrounding Intel and explore their impact on the company’s stock performance.

Reason 1: A Lost Opportunity

Sometimes, decisions made by companies come back to haunt them. For example, in the 2000 NFL draft, the New England Patriots selected Tom Brady with the 199th pick. At the time, he was the seventh quarterback chosen, and many teams passed on the chance to draft him. As a result, Brady went on to have an exceptional career, winning 10 Super Bowls and setting numerous records.

In a similar vein, Intel had a pivotal moment in 2017 when it chose not to invest in OpenAI during its early development. According to Reuters, the executive team at Intel did not recognize the potential of generative AI. This setback is especially alarming given Intel’s significance within the semiconductor sector and its influence on AI’s growth, raising valid questions about its capacity to identify transformative innovations.

Image source: Getty Images.

Reason 2: Quality Concerns

In its competitive landscape, Intel is largely measured against Taiwan Semiconductor Manufacturing. Recently, a report from Reuters revealed that Intel encountered substantial issues with its fabrication process. Specifically, Broadcom used Intel’s Foundry process node, known as 18A, but found that the quality did not meet their standards.

This disappointing outcome raises doubts about Intel’s production capabilities in comparison to its competitors, particularly Taiwan Semiconductor. A partnership that could have significantly benefited Intel now appears precarious, possibly discouraging other potential fabricators from engaging with the company.

Reason 3: Increasing Competition

Another pressing concern for Intel is the growing list of competitors. In addition to Nvidia and Advanced Micro Devices, companies like Microsoft, Amazon, Meta Platforms, and Alphabet are now venturing into the chip manufacturing arena.

These tech giants are investing heavily in IT infrastructure, including the creation of custom chips. While this trend could ostensibly provide opportunities for Intel’s Foundry business, the company’s earlier missteps and its recent quality issues raise doubts about whether it can capitalize on the influx of new graphics processing units (GPUs) to the market.

The Bottom Line

Intel resembles a hamster stuck on a wheel. The company has long been recognized as a pivotal player in the tech industry, but it now seems to be lagging behind emerging rivals. There is little indication that Intel is positioning itself for a significant comeback anytime soon.

With these challenges in mind, I am skeptical about Intel’s growth prospects and would not be surprised to see its stock continue to decline.

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Suzanne Frey, an executive at Alphabet, and Randi Zuckerberg, a former Facebook director, serve on The Motley Fool’s board of directors. Adam Spatacco holds positions in various tech companies. The Motley Fool recommends several stocks, including Advanced Micro Devices and Nvidia. The company also holds options related to Microsoft and Intel. For more information, see The Motley Fool’s disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.