Key Points

• Despite a 78% growth in data center business, Intel's stock price still tumbled significantly.
• Creating a shortage has prevented Intel from meeting the demand for AI.
• Weaker sales and high factory costs threaten recovery. PC

On October 30th, Intel's market value evaporated by nearly 29% in a single trading day, despite its artificial intelligence business growing at the fastest rate in many years. This sharp decline raises an unsettling question: Why would a semiconductor manufacturer find itself in trouble when the global demand for chips is higher than ever?

According to Intel's official financial report, revenue in the third quarter increased by 21% to $16.5 billion; revenue from its data center and AI division grew by 78% to $7.3 billion.

Intel has customers waiting for chips, but the company's production capacity cannot keep up.

You can think of it as having a factory with so many orders that it's impossible to deliver them all. The business seems good, but every delay in delivery means a loss of revenue, and expanding production capacity requires a huge investment.

This is one of the biggest problems Intel is facing.

CEO Chen Liwu admitted that the company has always struggled to meet the demand for Xeon server processors, which are widely used in data centers.

Manufacturing capacity remains limited, which restricts Intel's ability to generate more revenue from customers that have invested in AI infrastructure.

An explosion occurred at Intel's manufacturing plant in Israel in October, further exacerbating the issue. It is estimated that this disruption will result in a reduction of revenue by about $600 million over the next two quarters.

At the same time, Intel's traditional PC business is facing the opposite problem: insufficient demand.

Its client-side computing and physical AI division reported quarterly revenue of $8.1 billion, a year-on-year decrease of 5%.

The soaring cost of memory has made computers more expensive, dampening the purchasing intentions of consumers and businesses, and many people have postponed their upgrade plans.

Coinpaper Previous reports on Intel's financial results pointed out that these conflicting trends resulted in the company providing disappointing performance guidance, despite stronger quarterly results.

Why does an increase in revenue for AI not necessarily mean an increase in profits?

The operating methods of semiconductor companies can vary greatly depending on whether they are focused on designing chips, manufacturing chips, or doing both.

NVIDIA is primarily responsible for chip design and relies on manufacturing partners; whereas Intel operates both expensive wafer factories and chip design businesses.

Building an advanced semiconductor factory can cost tens of billions of dollars, and there will be significant expenses incurred before the factory begins to generate revenue.

Intel's foundry business reported revenue of $6.7 billion in the third quarter, which included a significant amount of internal transactions. Since these figures encompass business activities between different departments within Intel, they cannot be simply added to the company's product sales figures.

Manufacturing expansion also consumes cash through equipment procurement, research and development, and capacity ramp-up.

Although Intel reported a net profit of $3.3 billion in the third quarter, the company warned that it does not expect to generate positive cash flow for the whole year.

This discrepancy between accounting profit and available cash explains why impressive financial reports may not necessarily soothe investors.

Coinpaper recently also analyzed a similar contradiction in Amazon's cash flow: record-breaking demand for cloud services coincided with large-scale infrastructure expenditures.

Why is Wall Street still selling Intel shares at a time when its growth is strongest (AI)?

What investors ultimately value is the company's expected future returns, not just its performance in the most recent quarter.

Intel expects its revenue for the fourth quarter to be between $15 billion and $16 billion, which is more than $1 billion lower than Wall Street's expectations.

The adjusted earnings per share forecast of $0.25 also disappointed analysts, indicating that recent growth may not necessarily translate into stronger profitability in the short term.

At the time this warning appeared, skepticism within the entire semiconductor industry regarding expenditures related to AI was on the rise.

Coinpaper's analysis of NVIDIA shows that even chip manufacturers with extremely impressive revenue growth have not been spared from the impact of market selling pressure.

The previous downturn in the semiconductor industry also demonstrated how valuation concerns and infrastructure costs can affect the entire sector.