TikTok closes on Oracle-led US deal, Intel stock sinks on weak Q1 outlook

Intel’s Struggles, Market Volatility & TikTok’s US Future – Morning Brief Summary

Key Concepts:

• Intel Turnaround: Challenges in manufacturing, supply constraints, and the Foundry business’s progress.
• Market Sentiment: S&P 500 facing back-to-back weekly losses, impact of Intel news, and investor behavior (retail vs. institutional).
• TikTok US Deal: Structure of the new US entity, Oracle’s role, and implications for data security and investment.
• AI Infrastructure: Demand for AI-related chips, Nvidia’s position, and potential for future growth.
• Corporate Layoffs: Amazon’s ongoing job cuts and the broader trend of restructuring in tech.
• Foundry Business: The manufacturing of chips for other companies, a key strategic area for Intel.
• Yields: The number of functional chips produced from a single silicon wafer, a critical metric for manufacturing efficiency.
• Capex: Capital expenditure, investment in physical assets like manufacturing facilities.

I. Intel’s Disappointing Outlook & Turnaround Challenges

Intel shares are experiencing a significant decline following a weaker-than-expected outlook. The primary issue isn’t a lack of demand, but rather supply constraints, particularly for traditional computer chips (CPUs) needed for AI data center upgrades. Customers are upgrading servers faster than anticipated, and Intel is struggling to meet this increased demand.

• Supply Chain Issues: Intel anticipates the most pronounced supply constraints in Q1, with improvements expected throughout the year as they enhance manufacturing yields (the percentage of functional chips per silicon wafer).
• Foundry Business Focus: Investors are keenly watching Intel’s Foundry business – the company’s chip manufacturing service for others – a key initiative championed by CEO Pat Gelsinger. Specific customer announcements are lacking, despite previous speculation about Apple utilizing Intel’s advanced processes (18A and 14A).
• Process Technology: Intel’s 18A process was initially intended for internal use (Panther Lake, a PC AI chip) but its success is boosting optimism for attracting external customers. Customer announcements for 14A are potentially expected in late 2024/early 2025, with production ramping up in 2028-2029.
• Capex Strategy: Intel is hesitant to increase capital expenditure (Capex) until significant customer contracts for the Foundry business are secured.
• Memory Chip Impact: A shortage of memory chips is potentially impacting Intel’s revenue, as higher memory prices could increase the cost of products incorporating Intel chips (PCs and data center servers).

II. Broader Market Pressures & Investor Sentiment

The S&P 500 is poised for back-to-back weekly losses for the first time since June, reflecting broader market volatility.

• Market Performance: Stock futures are down: Dow (-0.5%), S&P 500 (-0.25%), NASDAQ 100 (-0.33%).
• Safe Haven Asset: Investors are shifting funds into gold, with prices exceeding $1,900/ounce and potentially closing out its best week since 2020.
• Retail vs. Institutional Investors: A recent sell-off prompted by former President Trump’s comments revealed a divergence in investor behavior. Institutions sold off, while retail investors stepped in to “buy the dip,” potentially learning from past market corrections.
• Potential Volatility Triggers: Several factors could trigger further market volatility: the expiring continuing resolution for federal funding, midterm elections, a new Federal Reserve chair, the debt ceiling debate, and potential changes to existing tariffs.

III. TikTok’s US Future Secured with New Entity

TikTok and its parent company, ByteDance, have established a US entity to address national security concerns and avoid a potential nationwide ban.

• Deal Structure: Oracle will lead a group of investors in owning a stake in TikTok US. ByteDance will retain a minority ownership (less than 20%).
• Data Security: US user data will be stored and secured by Oracle, addressing concerns about potential Chinese government access.
• Algorithm Control: TikTok will retain its algorithm, but it will be subject to US oversight and security measures.
• User Base: TikTok currently has 150 million active users in the US and 7.5 million businesses utilizing the platform.

IV. Tech Sector Trends: Nvidia & Amazon

• Nvidia & China: Reports suggest progress in securing approvals for Nvidia to ship chips to China, potentially unlocking demand. However, the situation remains fluid and subject to geopolitical risks. Nvidia’s stock is relatively flat year-to-date, awaiting a significant catalyst. Anthropic’s CEO expressed concerns about selling advanced AI chips to China.
• Amazon Layoffs: Amazon is initiating previously announced job cuts, primarily targeting corporate positions. This is part of a broader trend in the tech industry to streamline operations, reduce bureaucracy, and potentially adjust to changing demand patterns. The cuts are not directly linked to AI, but rather to a broader restructuring effort.

V. Key Quotes

• Kevin Mahn, CIO: “They didn’t have the supply to keep up with seasonal demand…if they address those supply constraints and boost their manufacturing…this could work out well for Intel in the long run.”
• Dan Howie, Yahoo Finance Tech Editor: “This is going to be a well the main question here is probably about the uh the algorithm right that's” (referring to TikTok’s algorithm).

VI. Data & Statistics

• Intel Stock Performance: Significant decline following the earnings report.
• Gold Price: Exceeding $1,900/ounce, poised for its best week since 2020.
• S&P 500: Facing back-to-back weekly losses.
• Amazon Layoffs: Targeting 30,000 corporate positions, with 14,000 already cut.
• TikTok US Users: 150 million active users.
• TikTok Business Users: 7.5 million businesses.

Conclusion:

The market is currently navigating a complex landscape of economic uncertainties, geopolitical tensions, and company-specific challenges. Intel’s struggles highlight the difficulties of executing a turnaround in a competitive industry. TikTok’s US deal provides a degree of stability, but ongoing scrutiny is likely. The AI sector remains a key area of focus, with Nvidia’s position and potential demand from China being closely watched. Tech companies like Amazon are undergoing restructuring to adapt to changing market conditions. Investors should remain cautious and diversified, recognizing the potential for continued volatility.