We're starting to see some hope that Intel can pull it off, says Constellation's Ray Wang

Here's a summary of the provided YouTube transcript:

Key Concepts

• Intel's Performance: Recent positive revenue reports and stock performance.
• 18A Chip Technology: Intel's new 1.8-nanometer chip process.
• Foundry Business: Intel's role in manufacturing chips for other companies.
• Government Investment/Industrial Policy: The US government's stake in Intel and its implications.
• Cost Reduction and Margin Improvement: Intel's efforts to improve financial performance.
• Demand for x86 Processors: Resurgence in demand for Intel's core PC processors.
• Competition in the Chip Market: The role of companies like Nvidia, Apple, and emerging technologies like TPUs.
• National Security and Domestic Production: The strategic importance of having a domestic chip manufacturing capability.
• Market Reaction: Investor sentiment and stock market response to Intel's news.

Intel's Resurgence and the 18A Chip

The transcript discusses Intel's recent positive financial performance, with shares trading higher following stronger-than-expected revenue. This signals a potential return in demand for their core x86 processors used in PCs. This is Intel's first quarterly report since the US government acquired a stake in the company.

Ray Wong, Chairman of Constellation Research and co-founder of AI for Forum, offers insights into this development. While acknowledging the positive signs, he emphasizes that the true test lies in the market's adoption of Intel's new 18A chip. This refers to Intel's advanced manufacturing process, aiming for 1.8-nanometer (nm) chip technology, a significant advancement from their current 3nm process. The success of the 18A plant hinges on securing orders for this foundry service.

Financial Improvements and Market Sentiment

Despite the uncertainties surrounding the 18A chip, Intel has achieved positive financial results. Costs have been reduced, leading to improved margins. Wong notes that Intel's CEO, Pat Gelsinger, has "created some chaos out of chaos," suggesting a strategic approach to recovery. The stock market has reacted positively, with investors hoping that domestic chip production will ultimately succeed. The transcript mentions a significant macro indicator: an 81% increase in 3 months (though the specific metric this refers to is not fully detailed, it implies strong market momentum).

Government Involvement and Timing

A key discussion point is the role of the US government's investment in Intel. The timing of this investment, alongside investments from other major tech companies (referred to as the "Mag 7") and the broader AI boom, is seen as a contributing factor. The transcript questions whether this is a cause-and-effect relationship or a coincidence, referencing the adage "coincidence is not causation."

The government's involvement is framed within the context of industrial policy, aiming to bolster domestic chip production for national security reasons, especially in the ongoing "war with China on chips and AI." This strategy is compared to past government interventions in the auto industry.

Operational Changes and Future Prospects

Intel has undergone operational changes, including a reduction in workforce and a reported 20% decrease in costs. The company has also provided flat guidance, which is considered a positive sign in the current business climate.

The critical factor for Intel's long-term success remains securing orders for its advanced chips. The development of thinner chips that consume less power is expected to attract interest from major players like Nvidia and companies that design or use chips, such as Apple. If Intel can successfully secure these orders, it would validate the ongoing turnaround efforts.

Risks and Concerns

Despite the optimism, significant concerns remain. The primary risk is that Intel might fail to secure sufficient orders for its 18A chips. Another potential threat is a flooded chip market or the emergence of new technologies, such as Tensor Processing Units (TPUs), that could displace existing architectures like Graphics Processing Units (GPUs). The availability of energy to support chip production is also mentioned as a potential bottleneck.

The transcript touches upon the historical difficulty governments have had in "picking winners and losers" in industrial policy, raising the possibility that Intel could become an "also ran" again if these challenges are not overcome.

Investor Perspective and Taxpayer Stake

The discussion briefly touches on individual investment strategies and the role of taxpayers. Wong humorously notes that as a taxpayer, he feels like a "part owner" of Intel due to the government's stake, implying a potential for dividends. However, he also expresses a preference for a free market. The transcript also alludes to the stock trading activities of government representatives, with one ad claiming a representative made $7 million. This raises questions about the timing and effectiveness of government officials' investment decisions.

Conclusion

The transcript presents a nuanced view of Intel's current situation. While recent revenue figures and stock performance are encouraging, and the development of the 18A chip represents a significant technological leap, the company's ultimate success hinges on its ability to secure substantial orders for its advanced manufacturing capabilities. The US government's strategic investment aims to bolster domestic production for national security, but the long-term viability of this industrial policy and Intel's place in the competitive chip landscape remain subjects of ongoing scrutiny and potential risk.