Why Intel Stock Rallied Monday Morning

Actions of Intel (INTC 3.31%) climbed early Monday, increasing as much as 3.7%. As of 12:41 p.m. ET, the stock was still up 3.5%.

The catalyst that pushed the semiconductor company higher was comments from a Wall Street analyst on the state of the chip industry.

A potential opportunity

News emerged late last week that Nvidia was creating a business segment to design custom processors for cloud computing and artificial intelligence (AI), as first reported by Reuters. This follows an “explosive market for custom AI chips” and is seen as a defensive move to maintain market dominance, according to the report.

After reviewing the landscape, analysts at Bank of America concluded that while the move could have long-term competitive implications for competing chipmakers, it is unlikely to have any short-term impact.

Although the report did not discuss Intel specifically, analysts said they “would not be surprised” if Intel Foundry Services (IFS) emerged “into the mix as a potential alternative to the foundry leader.” Semiconductor manufacturing in Taiwan to create these client processors.

The AI ​​gold rush is just beginning

The first wave of AI chips focused primarily on computing performance, but some users are starting to think about costs. The next wave of innovation will likely focus on energy consumption and optimization, which could reduce the cost of AI and bring it within reach of businesses with smaller budgets.

Intel has bold goals for its foundry business, aiming to “become the second-largest foundry in the world by 2030,” according to Stuart Pann, Intel senior vice president and general manager of IFS.

Additionally, the custom chip market is estimated to exceed $30 billion in 2023, accounting for about 5% of annual global processor sales, according to Needham analyst Charles Shi (via Reuters).

After seeing its shares remain limited over the past five years, Intel investors are hoping the chipmaker can turn its experience and continued demand for AI into profits, but its track record of success is mixed. That said, given the scale of the opportunities, the stock is certainly worth watching.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. Danny Vena holds positions at Nvidia. The Motley Fool holds positions and recommends Bank of America, Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short February 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.

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