Intel shares dropped 14% on Friday after the company warned of supply constraints and issued quarterly revenue and profit forecasts below market expectations. The decline erased about $31 billion from Intel's market value, despite a strong rally earlier in the year.
Immediate Action & Core Facts
Intel reported that it cannot meet surging demand for its data-center chips, which are used alongside AI processors in data centers. The company forecast first-quarter revenue between $11.7 billion and $12.7 billion, below analysts' estimates of $12.51 billion, and expects breakeven adjusted earnings per share, compared to expectations of 5 cents per share.
CEO Lip-Bu Tan acknowledged production inefficiencies, stating that Intel is on a 'multiyear journey' to address these challenges. The company also warned that rising memory chip prices could dampen sales in the PC market, where its new 'Panther Lake' chips were expected to boost market share.
Deeper Dive & Context
Supply Chain and Manufacturing Challenges
Intel's struggles stem from being caught off guard by the rapid surge in AI demand, which has strained its manufacturing capacity. The company is running factories at full capacity but still cannot meet demand. CFO David Zinsner noted that memory chip supply is expected to improve in the second quarter after hitting its lowest levels in the first quarter.
Investor Confidence and Turnaround Efforts
Despite the recent setback, Intel's stock had rallied significantly in 2025, gaining 84% last year and 47% in January alone. This optimism was fueled by high-profile investments, including a $5 billion commitment from Nvidia, a $2 billion investment from SoftBank, and a U.S. government stake in the company. However, the latest guidance has dampened investor enthusiasm.
Strategic Shifts and Market Position
Intel has been working on a turnaround strategy under CEO Tan, focusing on cost-cutting, streamlining management, and developing a new product roadmap. The company has also scaled back its contract manufacturing ambitions to shore up its balance sheet. However, it has yet to invest heavily in its next-generation 14A manufacturing process, awaiting a large customer commitment.
Broader Industry Implications
The surge in AI demand has also impacted other consumer electronics firms, as rising memory chip prices could weigh on their outlook. Meanwhile, Intel's traditional server chips remain in demand as large tech companies rapidly expand their data centers to support AI advancements.
Analysts have noted that while the server chip cycle appears strong, Intel's capacity planning has been insufficient to meet the current demand surge. The company's ability to navigate these challenges will be critical to its long-term recovery and market position.