It's been a rough few years for chip giant Intel (INTC +0.88%). The post-pandemic PC market has been a disaster, and the company has lost market share to rival Advanced Micro Devices in PC and server CPUs. As revenue and profits were collapsing, Intel forged ahead with its expensive plan to build out its own foundry business. Until recently, the market was not optimistic.
Investors appear to be warming up to Intel's comeback story. Intel stock has soared about 80% this year, albeit from a depressed level. Looking ahead to 2024 and beyond, Intel stock could continue to reward investors as multiple components of the company's turnaround start to bear fruit.
NASDAQ: INTC
Key Data Points
1. A manufacturing comeback
Up until around 2017, Intel faced no real competition in the PC or server CPU markets. AMD was struggling, weighed down by bad decisions made in the early 2010s. Intel was having trouble bringing its 10nm manufacturing process to volume production, but it barely mattered. The 10nm process was originally set to be ready by 2016, but it eventually got pushed back multiple times and by multiple years.
These delays finally caught up to Intel once AMD got its act together. With its Ryzen PC CPUs and EPYC server CPUs, both built using advanced manufacturing processes from Taiwan Semiconductor, AMD would chip away at Intel's market share and eventually surpass the market leader in terms of performance and efficiency.
For Intel to make the manufacturing investments necessary to catch up with TSMC and AMD, it needed to radically change its business model. The company is now full steam ahead with building out its own foundry business, aiming to become a major player in the business of making chips for others.
Intel is pulling out all the stops. An aggressive roadmap is so far on track, with the Intel 4 process now being used for the company's Meteor Lake laptop chips, Intel 3 set to be used for 2024's server CPU lineup, Intel 20A planned for Arrow Lake PC CPUs later in 2024, and Intel 18A expected to be ready to go by the end of next year.
Intel 20A and Intel 18A will bring a host of innovations, including a new transistor design and backside power delivery. Intel believes the 18A process will be more advanced than TSMC's upcoming N2 process, which isn't scheduled to arrive until a year later. If Intel's claims hold water, chip designers needing the most advanced manufacturing tech will be knocking on Intel's door.
The foundry market is worth more than $100 billion today and is expected to more than double in size by 2032. While it will take years to play out, the foundry business could one day generate more revenue for Intel than anything else the company does.
2. A PC recovery
After two years of relentless declines, global PC shipments are expected to return to growth in the fourth quarter of this year. 2024 is unlikely to be a blockbuster year for the PC industry, but Gartner is predicting 4.9% shipment growth. That's a welcome reprieve from a brutal post-pandemic environment for PC and component makers.
The PC recovery is lined up perfectly with Intel's Meteor Lake laptop CPUs, which officially launched earlier this month. Meteor Lake brings multiple innovations to the table, including a tiled architecture that allows Intel to mix and match manufacturing processes, and built-in AI hardware.
It will take some doing on the marketing front to convince consumers that they need an "AI PC." Offloading AI inference tasks, like blurring the background in a Zoom call, to dedicated AI hardware frees up the CPU and GPU, resulting in a snappier experience and better battery life. But that's not the kind of whiz-bang, must-have feature that necessarily gets consumers excited.
Even so, Intel's new chips will show up in more than 230 systems over the next year. Intel plans to launch Arrow Lake chips later in 2024, which should find its way into desktop systems as well. And looking further ahead to 2025, the planned end-of-life for Windows 10 could trigger a major PC upgrade cycle.
While Intel's PC business is still struggling today, a solid recovery in 2024 and 2025 looks likely for the chip giant.
3. Taking back the server CPU market
While Intel has remained competitive in the PC CPU market over the past few years, it's struggling mightily against AMD's latest server CPUs. Intel's heavily delayed Sapphire Rapids chips finally launched last January, but in terms of raw performance and efficiency, AMD's Genoa chips reigned supreme. Intel has gained some ground with Emerald Rapids, launched earlier this month, but the company is still playing from behind.
Intel's comeback should begin in earnest next year when the company launches two families of server CPUs built on its Intel 3 process. Granite Rapids will be focused on power, and it will likely boost the core count to better compete with AMD. Sierra Forest will be focused on efficiency, with massive quantities of lower-performance cores tuned for cloud workloads.
This is a case where Intel's manufacturing gains should pay off. Intel 3, a 3nm-class node that uses extreme ultraviolet lithography, should bring significant performance and efficiency improvements over both Sapphire Rapids and Emerald Rapids, which are made using Intel's aging Intel 7 process. In 2025, Clearwater Forest will succeed Sierra Forest and move to the Intel 18A process. Nothing is known about the follow-up to Granite Rapids, but it will likely make the same jump.
If Intel succeeds in regaining its manufacturing edge over TSMC in late 2024, the company will be in a great position to win back some lost market share from AMD.
