Bloomberg Audio Studios, Podcasts, radio News. This is a breaking news update from Bloomberg instant reaction and analysis from our three thousand journalists and analysts around the world. I'm just looking at shares of Intel and we are seeing movement there. Okay, love up close to fifteen percent after hours.
Let's go to it. Kuntown Sabani is with us. He's Bloomberg Intelligence senior semiconductor analyst out there in the Bloomberg San Francisco Bureaukon John, Good to have you here. Gosh, investors like it. Tell us what you think is? Are they right in terms of their response?
They are? We like it too, and thankfully. I mean, we had sort of previewed in our Intel preview that we're expecting double digit strongbeat and rais and it did come through, so that's great. I mean, look, we are seeing resurgence in terms of CPU specifically servers CPU demand due to agentic AI and infants workloads, especially in the AI headnotes, which are the CPUs that sit alongside the GPUs. We're also we were surprised to actually see strong PC
or client segment beats as well. There were some concerns around the growing memory constraint and memory pricing could impact the PC and market. So we're going to listen closely about what they have to say about second half outlook there, but overall really good results. The best thing stands out is the gross margin beat. Remember Intel is supply constraint, so this higher demand is letting them fill of factories more and really helping with the gross margins there.
Yeah, let's go to some of these Intel shares are up higher right now. It was up as much as seventeen percent earlier, about fifteen percent. The company says it's not commenting with deals on deals with external customers, it'll increase spending on new machinery. If we take a step back and just think about where this company is in a transition that has been many many many years in the making, where would you say they are in this transit.
They've been doing everything correct since Libutan took the helm. First thing that it is normalized CAPEC spend and not spend beyond where they didn't have orders. They have normalized OPIC spend. Finally, now the N markets are also becoming a tailwind for them. So it's all about execution now. I don't look the external customers. No matter how much nice and shiny the headlines are, that still will need work, that still will take at least a year or two
to get baked into the estimate. So they just have to keep executing well. Hopefully then market tailwinds continue to stay with them, gives them good cash flow from operations.
Few other headlines eighteen A and fourteen A progress ahead of expectations. They see PC market declining in the second half. AI business group double digits here over year. Double digit year over year growth for DCAI expected to continue. What about the inference chips that everybody or the inferencing that's going on. Where are they I mean, is that where they need to be focusing? Are they making progress in that area?
Should they be? I mean? So, like I said, the inferences is definitely helping the demand at the CPU service chips, which they have. They still have a lions share in right, that's their bread and butter. When it comes to other sort of accelerator chips in terms of inference, unfortunately they don't have much traction there, but that is something that
they have been making deals. One example is the deal with Sambonoa, and they've also announced they might be you know, coming out with their own new accelerator chips who attack that inference challenge. So that is something more of an optionality upside. But definitely the strength and CPU from inference is still helping them right now.
Just for fun, Carol, and because you can slice and dice numbers anyway you want, you can. I went back and looked at Intel's returns going back to the beginning of twenty twenty five, so the beginning of last year, Yeah, of two hundred and thirty three percent since and beating in VideA up forty nine percent, so out performing in video from the beginning of last year. Just just you know, look, if you go back a few years, it would video would destroy it.
I love that you went there, Coon John. If the government hadn't taken their position in Intel, would it be up so much? Would we be so enthusiastic about Intel. Would they be having this kind of report without it?
I can't comment if what the stock would have done, I can comment this. Look, the government taking the stake has not impacted anything fundamental so far. Right, It's not like the stake is driving revenues for them. It's not. It did help in terms of liquidity, but the capex spending was already normalized, so it's like if they didn't get the money from government, I don't know what could have changed so far in the business, whether it's on the revenue line side, item or capex side of things.
So it did definitely have this help with sentiment and morale boosting for sure.
Anything missing question on the call that you're going to be looking at for real quickly.
I think the headline about again what the pc how much of a weakness in PCs we expect because it still is the biggest portion of their revenue, so they do get definitely impacted by that weakness if it continues to grow stronger.
All right, so appreciate it. Coon John, thanks so much, Ku John Sabani. He's our senior semiconductor analyst at Bloomberg Intelligence out there in our San Francisco bureau. Our next guest usually out there in our San Francisco bureau.
He's back here from the Bloomberg Interactive Brokers studio. We're talking about Ed Ludlow shares an Intel right now up by more than fourteen percent, shares just surging. The company giving the strong sales forecast for the current period, there's the signal is that the company is beginning to benefit from the build out of AI infrastructure. Ed Loudlow is
with us from Bloomberg Tech. Ed, you've looked at this company for a long period of time, especially during this turnaround over the last few months.
How's it doing well?
So?
Ian and I just had a good, pretty long phone call with Litvu, Tan and Dave's into the CFO, and there's that. We have a lot of answers. Actually, you know, when there were so many headlines that hit, it's hard to see what the real driver was. I don't obviously the revenue guide really important, you know. For the current period. The story is really simple. CPU demand, the Xeon server processor is really really big, and so they are now in what they would describe as the enviable position where
they can divert supply to feed that market. Kun Jam was just talking about the PC market or the client market. We can talk a little bit about that. There are some unique factors there, but basically demand is strong, it is growing, and they are not yet able to meet it, and that is a good position for Intel to be in. One thing, I would say, by.
The way, what do you want to be able to meet it, right, you want.
To be able.
And so this was the story quarter to quarter. What is the lipbutan effect? What does him becoming CEO and changing how the company works actually mean. It means not leaving any money on the table, you know, finding the CPUs that are coming from finding the CPUs to meet the demand that's out there. And they're doing their absolute best for sure. Now, margins were really good in the quarter gone first call, not against history. You know, Intel's
a company just have margins at sixty percent. Now we're at thirty seven point five or maybe slightly beyond that on an adjusted basis. But I think what was so interesting is this is financial jargon. But they were honest that that's just because revenues were higher. You know, they're not necessarily finding the secret source yet nonprofit.
So because the demand is strong, the supply isn't there, they can charge more.
Yeah, And so kun Jam poses a question, why I'd like to hear more about the PC market. This is what Intel sees in the PC market. In the first part of this year. The PC makers, the Client group, were able to build up supply of memory chips. Remember, the backstory is that memory is being claimed by the data centers. You know, it's very similar the type of memory chip that goes into a PC that goes into
a server. The problem is is Intel sees it that in the second half of this year they're going to run out of that inventory of memory and they're going to have to be buying in the market spot prices and at as far as Intel sees it means half and half the second half of this year, the PC market will decline. That's the explanation. It's the behavior of the client group itself, the PC makers and what they have or have not been able to do in building up inventories and supply of memory chips.
Interesting. And I want to go back to this question that Carol asked Koon John about the US investment.
Yeah, it is.
It's just it is an interesting time for economic statecraft in the US. I mean, we are the third largest shareholder right before in video. Actually did the investment is I mean, is it even a possible question to answer? Did the US investment fundamentally change this company?
Is a big support for the CEO talked about morale.
I mean, remember that it was not the only if you look at it from this perspective. It was not the only balance sheet strengthening exercise that that Boo's done. He looked at you right in Vidia, He's looked at the private markets or looked at working with private equity on projects. The goal was to strengthen the balance sheet to allow them to be nimble do the things that they wanted to do. As for US manufacturing, that's a different story, right. They don't name their foundry customers. There's
a lot of question marks over Foundry. But what's so interesting is I asked Lip Bhutan about Elon Musk and I was like, last night on his own earnings call, Elon Musk name checked you and said we will use Intel's fourteen A process, which on paper would be the first time anyone said that they'll use Intel's fourteen A process. And he declined to say anything about that. He was like, it's up to the customers to decide if they want to talk about that. We don't comment. Put that to
one side. But what he said was, and what Dave's insterer said is they think they'll get more out of working with Elon Musk, then Elon Musk and his TERRORFOWD project will get out of Intel. In other words, Elon's really good at stuff process, eliminating barriers and inefficiency, and that was their answer. We think we're going to really benefit from being in this partnership with Elon Musk. He's really good at that.