Intel’s chip deal with Amazon boosts confidence

Bengaluru — Intel shares jumped 7% before the bell on Tuesday, as a chip deal with Amazon’s cloud business provided a major stamp of approval for its struggling contract manufacturing business.

The chipmaker will build custom artificial intelligence (AI) chips for Amazon Web Services (AWS) as part of the multibillion-dollar deal. The move expands a years-long tie-up between the companies under which Intel designs several chips used in Amazon’s data centres.

“The deal provides Intel with some credibility as it looks to gain traction with new external customers. In addition, it will help Intel sell itself as a supplier of custom AI silicon chips” said Angelo Zino, senior equity analyst at CFRA Research.

Intel’s stock has plunged nearly 60% this year as it lagged behind chip firms including Nvidia and Taiwan Semiconductor Manufacturing Company (TSMC), and missed out on an AI-driven boom in chip demand.

The company has been trying to regain the manufacturing edge it lost to TSMC by expanding its foundry unit, which has been the centrepiece of CEO Pat Gelsinger’s turnaround strategy.

AWS is among the first major customers with which Intel has announced a definitive deal. It had said in February Microsoft would use its services to manufacture a custom computing chip.

But “meaningful” revenue from the capital-intensive foundry unit is not expected until 2027, even as expensive investments sap cash flow and draw investor ire.

To ease the pressure, Intel said it would pause chip factory projects in Poland and Germany by about two years, raising doubts about the nearly €10bn in subsidies from Germany for its two plants in the country.

“The move ... should help to boost cash flow, even if the focus on US-based fabs is unlikely to go down well in the EU. It will no doubt gain plaudits in Washington though and help Intel preserve important relationships,” Russ Mould, investment director at AJ Bell, said.

Reuters