Intel finally gives Wall Street good news

After a disastrous second quarter earnings report in August that resulted in the worst trading day for the company’s stock in 40 years, Intel (INTC) CEO Pat Gelsinger finally has some good news for Wall Street.

On Monday, Gelsinger announced that Intel has entered into an agreement with Amazon Web Services that will see the chipmaker produce custom chips for the cloud computing giant.

The CEO also said that Intel will transform its Foundry business into a subsidiary company with independent directors. A foundry is a manufacturing facility for semiconductors. The move is meant to create clear separation between Intel’s design and manufacturing businesses, providing Intel’s foundry customers with the peace of mind that its design teams won’t have access to their chips.

That’s not all. Intel also confirmed that it was awarded $3 billion in funding from the CHIPS Act. In a release, the company said the deal will “help secure the domestic chip supply chain and collaborate with the [Department of Defense] to help enhance the resilience of US technological systems by advancing secure, cutting-edge solutions.”

It’s not all positive news for Intel, though. It’s in the midst of a massive restructuring plan, which includes laying off 15% of its workforce. The company also announced on Monday that it’s putting some of its plans to build new facilities in Europe on hold. And while it will complete its advanced packaging hub in Malaysia, Intel says it won’t start up the factory until demand improves.

Then there’s Wall Street. While shares of rivals like Nvidia continue to climb, Intel’s stock has fallen a staggering 57% year to date.

“I wouldn’t say they’re out of the woods yet,” Daniel Newman, CEO of the Futurum Group, told Yahoo Finance. “But I’d say additional funding sources, additional partner announcements, a cleaner structure for outside partners to invest are all the right motions.”

Intel’s foundry business gets a boost

Intel is a rarity among semiconductor giants in that it both designs and assembles its own chips. Nvidia (NVDA), AMD (AMD), and Qualcomm (QCOM) each work with third-party manufacturers, namely TSMC, the world’s largest advanced chipmaker.

Intel is looking to grab market share for TSMC, and to do that it’s making chips for both itself and third-party customers. Before the Amazon (AMZN) news, Microsoft (MSFT) was Intel’s most prominent manufacturing customer. Adding another marquee name, however, helps to further establish Intel’s credibility as a chip builder that can assemble semiconductors based on customers’ needs.

“Intel is saying that it will have operating guidelines and independent board members that will be fully transparent,” Patrick Moorhead, CEO and chief analyst at Moor Insights, told Yahoo Finance. “And I think if they get the right agreement, the right operating rules … I think they have something here. I really do.”

Intel’s foundry moves will also provide the company with the chance to find outside capital for the business.

“Foundry business will now potentially be better able to access outside sources of funding; providing the struggling business line with capital-raising capabilities and, ideally, allow [Intel] to continue focusing on manufacturing capabilities without offsetting core business performance, striking a balance between [long-term] growth prospects and [short-term] profitability concerns,” Stifel analyst Ruben Roy wrote in an investor note following Intel’s announcements.

But Intel’s foundry business has reportedly faced setbacks. According to Reuters, Broadcom, which is evaluating Intel’s manufacturing processes, was disappointed with test runs of Intel-built chips. Getting Amazon onboard, however, appears to show that Intel’s manufacturing is working for certain customers.

Intel’s work with the Department of Defense, meanwhile, illustrates that the government considers it a crucial supplier for some of its most critical components. Semiconductor assembly plants, Gelsinger has said, will play as large a role in geopolitics over the next 50 years as oil refineries played in the previous 50 years. And Intel is set up to play an important part in that for the US.

New chips will test Intel’s market strength

Intel’s foundry business alone won’t determine its future prospects, though. Its AI and data center segment will also need to step up after the company made earlier mistakes in the space for high-powered chips.

According to Moorhead, Intel’s Gaudi AI processor hasn’t caught on among hyperscalers like Amazon, Google, and Microsoft because it came out after those companies began using or working on their own AI accelerators, giving them little reason to purchase Intel’s offerings.

Intel does have a new GPU coming in 2025 that could prove to be competitive with Nvidia’s and AMD’s data center chips, but it will need to regain customers’ trust if it’s going to take any market share.

Then there’s Intel’s Client Computing Group, which is responsible for the processors that power desktops and laptops around the world. The segment still generates the largest chunk of the company’s revenue, but is facing stiff competition from rival AMD and Qualcomm’s upstart PC chip business.

To combat that, the company debuted its Core Ultra 200V line of chips earlier this month. Intel says it packs the kind of performance and battery life customers have been clamoring for, and puts the chips up there with the likes of Apple’s custom processors that have won fans thanks to their own powerful and power-efficient design.

Now Intel just has to make sure the Core Ultra 200V series lives up to expectations when it starts hitting store shelves in new laptops this fall. If it can do that, and continue to sign up customers for its foundry segment, Intel could soon find itself back on the upswing.

“This is a good start,” said Newman. “I think anyone that tells you they’ve turned the corner … is probably ill-informed. But I would say, if you were looking for a kind of a roadmap or signal, the … Ruben Roy direction off the bottom is palpable.”