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Intel’s Turnaround: Amazon Deal Sparks Optimism

Intel Corporation (INTC) is showing signs of life after a prolonged slump. 

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Following a series of strategic announcements, Intel's shares surged for two consecutive days, signaling renewed confidence in the company's turnaround plan. Central to this recovery is a multibillion-dollar deal with Amazon (AMZN) Web Services (AWS) to co-invest in a custom AI chip, a move that has the potential to restore Intel’s position in the highly competitive semiconductor market.

The collaboration with AWS will see Intel developing a custom AI semiconductor based on its advanced 18A process technology. This partnership not only showcases Intel’s ability to secure high-profile clients but also reinforces its commitment to AI computing, a sector where rivals like NVIDIA (NVDA) have dominated. Intel CEO Pat Gelsinger described the deal as a significant step forward, marking a win for the company's foundry unit, which has struggled to gain traction in recent years.

Balancing Ambitions with Reality
While the AWS deal is a bright spot, Intel is scaling back in other areas. Plans to build new factories in Germany and Poland have been paused for at least two years due to market conditions. These delays are a setback for the European Union’s semiconductor ambitions and may reignite debates over the allocation of subsidies in Berlin. Despite these cuts, Intel is pressing ahead with its U.S. expansion, with facilities in Arizona, New Mexico, Oregon, and Ohio still on track.

Intel’s foundry business, a key part of Gelsinger's turnaround strategy, is also undergoing a transformation. The chipmaker has decided to separate the foundry unit into a wholly-owned subsidiary. This structural change is designed to reassure potential customers—some of whom are also competitors—that Intel can act as an independent supplier. By doing so, Intel hopes to attract more clients and build a more competitive foundry business.

Navigating the Path Ahead
Intel is not out of the woods yet. The company faces ongoing challenges as it seeks to regain its footing in a market where it has lost ground to competitors like AMD (AMD) and NVIDIA. Intel’s recent layoffs, cost-cutting measures, and suspension of its dividend reflect the financial pressures it continues to face. The company also plans to reduce its real estate footprint by two-thirds by the end of the year, further underscoring its focus on efficiency.

However, the recent surge in Intel’s stock price—up 8% after the AWS deal—shows that investors are cautiously optimistic. With a new $3 billion government award to produce chips for the U.S. Department of Defense, Intel is making strides in securing long-term growth opportunities. Still, much depends on its ability to execute its turnaround strategy effectively, particularly in the fast-growing AI sector.

Gelsinger acknowledged the company’s uphill battle but remained steadfast in his commitment to delivering results. “Is it good enough? No. Is it substantial? Yes,” he said, reflecting both the progress made and the challenges ahead. Intel’s future now hinges on its ability to capitalize on recent wins and sustain momentum in an increasingly competitive landscape.


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