After years of fruitless efforts, Intel's (INTC 5.44%) turnaround finally seems to be picking up steam.
The legacy chip giant has attracted investments from both the federal government and from Nvidia (Nasdaq: NVDA), and investors seem to have confidence in new CEO Lip-Bu Tan, the former Cadence Design Systems CEO who resigned from Intel's board of directors in 2024 after criticizing the way the company was being run.
The stock has now jumped more than 100% over the last six months, which includes a pullback after its fourth-quarter earnings report. However, investors seem to be overlooking a potentially devastating assessment by Nvidia of Intel's new 18A process.
Image source: Intel.
Intel's 18A process
Much of Intel's turnaround is staked on its ambitions of becoming a leading contract chip manufacturer on par with TSMC and Samsung, the global leaders. It established Intel Foundry in 2021 and has lost billions of dollars since then, building it out new, advanced processes like 18A, which refers to 18 angstroms, or 1.8 nm, the node used to create the chip.
The company just began production on 18A, and a lot is riding on its success for Intel. Management sounded optimistic on the recent earnings call as CEO Lip-Bu Tan said, "I'm encouraged by the steady progress on our Intel 18A use," and added, "yields continued to improve steadily as we work to ramp the supply needed to meet strong customer demand."
However, Nvidia seemed to render a different verdict on 18A. According to a Reuters report last month, Nvidia tested out Intel's 18A process, but said it would not use it for manufacturing.
It's not fully clear why Nvidia chose not to move forward, though it could be related to concerns about yields or other technical issues. The decision is noteworthy not just because Nvidia is at the center of the AI boom, but also because it invested $5 billion in Intel in September, so it has a vested interest in Intel's success now. However, that agreement did not come with any commitment that Nvidia would use Intel's foundry.
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What it means for Intel investors
Investors mostly shrugged off the news when it came out last month, as the stock fell as much as 4% on Dec. 24, the day of the Reuters report, but recouped nearly all of those losses by the end of the session.
Intel has not yet secured a major external customer for 18A, and landing Nvidia would have been a big win and validation for its foundry business. Instead, it could represent a significant setback.
Reuters had also reported nearly a year ago that Broadcom was also testing out 18A, though it's unclear what the status of that relationship is currently.
For Intel, finding outside customers for 18A will be crucial for the success of its foundry business. Until it shows it can do that, investors should tread cautiously with the stock, especially as it's already doubled in just six months.
