Intel Shows Why Nvidia Is Still Hard to Beat -- Heard on the Street -- WSJ

Dow Jones02-03 18:30

By Dan Gallagher

Nvidia might look a little less invincible these days. But Intel has just shown that challenging the AI powerhouse is still no easy task.

Intel's fourth-quarter report late Thursday followed a bruising week for Nvidia. The designer of artificial-intelligence chips and computing systems shed more than 18% of its market value after the world caught wind of technical breakthroughs by Chinese AI startup DeepSeek. Those developments suggested it is possible to build advanced AI models on a relatively low computing cost, which many believed could lead to lower demand for Nvidia's products.

That outcome is still far from certain. Mark Zuckerberg, chief executive of Meta Platforms and one of Nvidia's largest customers, said during his own earnings call last week that "it's way too early" to know whether DeepSeek's developments will lead to lower capital-spending needs for AI. But he added that more powerful computing will still lead to better AI systems, so "investing very heavily in capex and infra is going to be a strategic advantage over time." Meta plans to spend as much as $65 billion in capex this year, compared with just under $40 billion last year.

Intel might not be getting much of a piece of that, though. In the chip maker's own fourth-quarter earnings call late Thursday, Intel Co-CEO Michelle Johnston Holthaus said the company has decided to not bring its Falcon Shores chip to market. Intel had been planning to launch the GPU accelerator -- the same type of chip that has made Nvidia the name to beat in artificial intelligence -- later this year. But citing "industry feedback," Holthaus said the company has decided to use Falcon Shores as an internal test chip only, as it develops a rack-based system for AI computing.

That still puts Intel in the position of challenging Nvidia on the latter's home turf. Nvidia's latest chip family, known as Blackwell, is also available on server racks, some versions of which are so demanding that they require liquid-based cooling systems to be installed in the data centers that use them. That still isn't cooling demand for those products; analysts expect revenue from the Blackwell family alone to surpass $75 billion in Nvidia's next fiscal year, which ends in January 2026, according to Visible Alpha. Intel's entire business is projected to generate just over $53 billion in revenue for roughly the same period.

Falcon Shores isn't Intel's first flameout in trying to go after Nvidia. In its third-quarter call three months ago, Intel said the third version of its Gaudi AI accelerator chip was seeing weak demand and would fall short of its modest sales target of $500 million for 2024. The outlook for its coming rack-based system called Jaguar Shores is also highly uncertain -- especially because Nvidia will be shipping Blackwell systems in high volume over the next 12 months. "Intel has no meaningful [data center] AI presence," Rick Schafer of Oppenheimer wrote in a note to clients on Friday. "We don't expect that to change before 2027."

What Intel even looks like as a company by that point is a big question mark. The once-flush chip giant burned nearly $15.7 billion in cash last year -- its third straight year of negative free cash flow -- as it pursues an ambitious turnaround plan to catch up its manufacturing technology, builds a foundry business that makes chips for other companies, and stems the market-share loss its own products have been experiencing because of robust competition from the likes of Nvidia and Advanced Micro Devices.

"The easiest way to address these questions is to see better products come to market, and that's clearly going to take time," wrote Joseph Moore of Morgan Stanley on Friday. But analysts are projecting a cash burn of $9.9 billion this year, according to FactSet. Intel's stock also has lost more than half its value over the past year, and nearly 17% since the surprise push-out of CEO Pat Gelsinger in December. Time is something that Intel no longer has in abundance.

Write to Dan Gallagher at dan.gallagher@wsj.com

 

(END) Dow Jones Newswires

February 03, 2025 05:30 ET (10:30 GMT)

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