By Kanchana Chakravarty
Jan 23 (Reuters) – Intel shares plunged 14% on Friday after the company struggled to meet strong AI-driven demand for data center chips due to supply constraints, disappointing investors betting on its recovery.
After years of sitting on the sidelines of the AI boom that made Nvidia the most valuable company in the world, Intel is finally enjoying a surge in demand for its traditional server chips used alongside advanced graphics processors in data centers.
That and high-profile investments from the US government, SoftBank and Nvidia have reignited investor interest. Intel stock outperformed most semiconductor companies last year with a gain of 84% and has extended its rally into 2026, up 47% in January so far.
“The rally had largely been driven by ‘the dream’ rather than near-term reality or fundamentals,” TD Cowen analysts said.
Intel can’t meet demand even if it keeps its factories at full capacity, but Intel Chief Financial Officer David Zinsner said he expects available supply to improve in the second quarter after hitting its lowest levels in the first quarter.
Jefferies analysts also noted that Intel’s supply shortages will likely bottom out in March, while brokerage Oppenheimer said constraints will ease in the second quarter.
Friday’s losses came after quarterly profit and revenue forecasts that came in below estimates. The drop will wipe more than $35 billion off Intel’s market value if losses continue.
“The server cycle seems real, but the company appears to have misjudged it woefully and its capacity footprint was taken massively by surprise,” Bernstein analysts said.
The company faces a delay in changing the type of semiconductors it makes, hampering efforts to increase production of in-demand data center processors.
Also influencing Intel’s forecast was a global memory supply shortage, where price increases are expected to reduce demand from the PC end market, Intel’s largest segment, where its new “Panther Lake” PC chips were expected to spark a comeback after years of market share losses to AMD.
Investors are closely examining Intel’s turnaround under CEO Lip-Bu Tan, who has focused on cutting costs and scaling back expansive contract manufacturing ambitions.
The prospect of new third-party customer announcements had largely contributed to Intel’s rally ahead of the results, but Tan’s comments on a post-earnings call indicated that two customers had only gotten so far as to evaluate the technical details of its upcoming 14A manufacturing technology.
(Reporting by Kanchana Chakravarty in Bengaluru; Additional reporting by Samuel Indyk in London and Arsheeya Bajwa in Bengaluru; Editing by Alun John and Maju Samuel)