Intel just had its worst day on the stock market in 55 years, with shares falling nearly 30%. But here's the strange part: Intel actually reported a strong quarter. Revenue grew, its data center business surged, and the company beat expectations. So what went wrong?
In this episode of Semi Doped, Vik Sekar and Austin Lyons dig into Intel's Q3 2026 earnings and the problems behind its disappointing outlook.
Three issues are at the center of Intel's troubles: a weakening PC market driven by rising memory prices, a shortage of advanced packaging substrates that limits server CPU production, and a tragic factory accident in Israel that disrupted chiplet supply.
But how much of this was bad luck, and how much was poor planning?
We debate whether Intel should have anticipated the surge in demand for server CPUs from agentic AI, whether its manufacturing strategy can respond quickly enough, and what these problems mean for its ambitions to become a leading-edge foundry alternative to TSMC.
We also step back to examine what Intel's experience tells us about the broader semiconductor market.
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Topics covered:
Why Intel's stock crashed despite strong earnings
How the AI memory boom is hurting the PC market
Why substrate shortages are constraining server CPU production
The consequences of Intel's Fab 28 accident
Whether Intel misjudged demand for agentic AI CPUs
Intel 18A, 14A, and the long-term foundry opportunity
Why strong demand doesn't necessarily translate into revenue
Why investors are increasingly demanding returns from the AI infrastructure buildout
The bigger question: Is Intel facing a temporary supply-chain problem, or are its troubles a warning sign for the broader AI semiconductor industry?
This episode is supported by Meter.
You have the GPUs and the power. Now who builds the network, and who do you call when it breaks? Meter designs, deploys, and runs frontend, storage, and management networks on its own switches and its own network OS. One call reaches the team that designed the hardware and wrote the software.
This podcast is lightly edited for clarity.
The 35% Drop
Austin: All right, hello everyone. Welcome to another Semi Doped episode. I’m Austin Lyons of Chipstrat. I write a newsletter for institutional investors and technology executives.
Vik: Hey, I’m Vik Sekar and I’m the founder of semi-exponent, where I work with institutional clients on semis and investing, and I also write a substack called Vik’s newsletter.
Austin: All right, Vik. So today we are talking Intel. Obviously, everyone’s talking Intel. I was just looking up the stock. So we’re recording this Tuesday, November 3rd. Everyone’s voting today or everyone already voted. But in the United States, it’s a big day for voting. But here we are. We’re talking Intel. Right now I’m looking at the stock. It’s down 35% since the earnings call. So that is why we are talking Intel. You and I have talked a lot about it, have a lot of thoughts. We’re going to get into that today. So, I’ll throw it over to you to set the stage.
Vik: Yeah, so Intel was quite the recovery story that everybody expected because they had a leadership change sometime back. Lip became CEO and everybody was optimistic that they’re going to make a comeback in the foundry business. And that is very important for the United States because Intel is a leading edge foundry and the world needs an alternative to TSMC. And especially if it’s United States based, it’s a perfect, win-win situation for US companies. So that was the expectation. And the stock ran up recently from like $40 all the way to, I don’t know, $120, $130, I think. So there was a lot of expectation and stuff. And things were looking okay for quite some time.
Intel has their substrate business, where they make like advanced packaging, right, through EMIB, which is embedded multi-die interconnect bridge, which is the way you connect a couple of chiplets together is through this technology called EMIB. And the world needs a alternative to TSMC’s CoWoS as well, like chip on wafer on substrate. So Intel was perfectly poised for advanced packaging. And then a couple of quarters ago, they were also really well poised for CPUs because agentic AI became a thing. And who else could make CPUs than Intel? They’ve done it for like 50 plus years. So it’s a perfect position to be in and expectations were running high.
After the earnings call, even though the numbers were pretty good, the data center segment is growing really, really well. But then, what happened was that their guide for the future quarters to come was kind of dim and the tone was subdued and there were good reasons why Intel ended up in this situation, which we will get into in quite some depth, but I just want to list out the three reasons that Intel’s guide didn’t pan out and the investors were disappointed.
Austin: Yeah, so and then we’ll debate them.
Reason #1: The PC Market Is Weak
Vik: Yeah, we’ll go through each one and we’ll see what that actually means and how we got here. But the first one is that the PC segment has become very weak. And that’s primarily because of the memory price increases. Data centers are stocking up all the memory. There is no memory left for regular PC consumers to use anymore. So much so that I don’t know Austin if you followed this, but Sam Altman, there was this like, he said on this cheeky pint podcast that people are wasting RAM on their home PCs. It’s idle 95% of the time, it’s probably better if we had it for data centers or something like that.
Austin: I saw that. I was shaking my head because I was like, dude, it’s an interesting argument to ask where should the incremental RAM go, like net new, but to be like, ah yeah, we’re just wasting all this RAM in our laptops, in our desktops, in our phones. It was like the dumbest thing I’ve ever heard.
Vik: And I’m sorry, this is a little of a tangent, but it’s totally worth it. There’s all these memes around this about how, ways to trap Sam Altman. There’s like people have put like DRAM chips like candy and then at the end of it, there’s like a box propped up with a stick, so you can trap Sam Altman when he comes to pick up DRAM chips. So many funny things happening. Anyway, apart from all the fun and jokes, it’s just that there is not enough DRAM to go around for computers. Anyway. So because of that, memory is very expensive and so basically Intel just passed on all the costs to the customer and what ended up happening was like the demand petered out. Nobody wants to buy PCs. They’re like, I’m happy with what I have. If there’s enterprise or consumers like us, we are like, yeah, it’s fine. My PC’s fine. I can’t buy computers at a premium right now. I’ll just stick to what I have. So, that segment has been slowing down.
Austin: Correct. It’s a very elastic market as everyone knows, especially consumers, of course. If you were maybe thinking about a new computer, obviously if it’s $500 more or $1,000 more, you’re totally not going to buy it. I think enterprise is surprisingly elastic as well. So yes, you’ve had your laptop for three years and it’s slow and we want you to be as productive as possible, but if it’s going to cost an extra $500, $1,000 a person times all the people in your company who are up for a refresh, they’re just going to push it back. So, it’s very elastic.
A Failure to Plan
Austin: This episode of Semi Doped is presented by Crusoe, where you can fine-tune and serve open models without managing a single GPU. When we sat down with Crusoe’s serverless fine-tuning product team, we asked the question every AI user wonders, what will you do with my data? Crusoe has a simple answer. They don’t touch it or see it. Your data is yours to fine-tune models with or simply store for future use. Their fine-tuning is designed so that both your training data and the fine-tune model itself remain your property. Your training data is encrypted, so even Crusoe’s cloud engineering team can’t see it. You can deploy it on Crusoe Cloud in one click or download the checkpoints and run it anywhere you’d like. The fine-tuning process is fully managed, so you upload a data set, pick an open model, and Crusoe takes care of the GPUs, orchestration, and all the infrastructure management. You pay per token processed rather than per GPU hour, so run a few versions, compare them, and download the one that actually works best for your use case. Create a new Crusoe account for free and get $5 in credit to start testing today. This part is super important, guys. Support Semi Doped by going to semidoped.com/crusoe, click on that link in the show notes, type it in yourself, and you’ll get directed to a sign-in page. Sign in with Google or create a new account, and Crusoe will immediately create that account for you with $5 in it. Boom. Again, just click that link in the show notes, sign in, $5 for you, and you support Semi Doped. So, thank you for your support. Go check out Crusoe, try to fine-tune your own data. Again, the link to try serverless fine-tuning is in the show notes. So, hit that now, click through, and make sure you claim that $5, give it a try, and support us. Back to the show.
Austin: Shouldn’t Intel have seen this coming? How long have we known that memory prices are skyrocketing due to AI and that obviously the same three memory companies that have memory wafers that make DRAM that get used for HBM, stack DRAM, and also for DRAM, it’s the same wafers that are making DRAM for consumers and shouldn’t we have all foreseen this? Haven’t we all foreseen this for a long time? I’m specifically, if you look at Intel’s quarterly earnings calls, a year ago, October 23rd, 2025, there was no memory warning back then. I think they just said something like, hey, we’re prudently preparing for another year of strong demand in 2026.
So that, one question is like, why did they not call it out then? In January 22 of 2026, we got the first warning in the earnings call where Intel said, industry-wide supply for key components like DRAM, NAND, and substrates has come under increasing pressure due to intense demand to support the rapid expansion of AI infrastructure. So benefit of the doubt, okay, January of 2026, you saw the substrate thing coming, you saw the DRAM thing coming. So how did we get to where we are now? And I’ll let you continue on of, oh, and I think maybe I buried the lead here a little bit, but we’ve produced a lot of laptop and desktop chips, client chips for PCs that aren’t going to sell and so our OEMs, we’re kind of...
Vik: Yeah, so that’s the whole problem. I was reviewing the earnings calls from the last one to what they said now, and I was trying to understand where things went wrong, and I’m writing an article on the substack that goes into some of this stuff in more detail. But essentially, the story is, I didn’t go too far back. I just wanted to see like everything was reasonably upbeat last earnings call, but what’s happened now? So the whole story is that if you see the last earnings call, Q2, what we just had was Q3. The Q2 earnings call, an analyst asked the CFO, basically, what do you see happening here? Because you say your client segment actually grew in revenue. But did that revenue grow because you actually sold more parts or did you increase the chip prices and then make more money? So the CFO replied and said, yeah, we sold the same number of chips, but we increased the price of each chip.
And then the analyst goes, hey, what are you going to do for the second half of this year? This is already slowing down, we can see this in Q2. What’s your plan for Q3 and Q4? You think, can you sell it at this price essentially? And the CFO’s response was like, yeah, yeah, yeah. We know the demand is going to be soft. So, there’s one point to take note of. In Q2, definitely they knew that demand is going to be soft. It’s in the earnings call, you can go read it. But the explanation for why things are going to be A-OK is because they were like, oh, it’s good, it’s a good thing that there’s no demand for client side chips because we don’t have enough supply anyway. We are not able to make chips fast enough anyway. So it’s a good thing, quote unquote, good thing that client is weakening. Now we can take all those wafers and build server CPUs with them, which is amazing because everybody wants server CPUs for agentic AI. So it was this actually framed as a don’t worry about it if the client is weak, we’ll sell more server CPUs and make up the shortfall. Everything’s good. But that actually didn’t happen.
Reason #2: Substrates and Chiplet Dependencies
Austin: Yes, yes. I’m realizing that I kind of interrupted you. You were setting at a high level like the three things that sort of went wrong, right? You were talking about client and how that was very weak. And then I think that I jumped in and went down the rabbit hole right there because that was to me like the most shocking thing, which is back to your point, Intel is an integrated device manufacturer, meaning they have their own foundry. And so they should be able to have tight coordination between their product planning group and their foundry team. Now, of course, their foundry is also working on becoming an external foundry and serving external customers. But even internally, there should be a very tight conversation between the planning groups.
The client team should have stood up, you would think that they would have stood up a year ago and said, guys, memory prices are really high. We’re trying to pass it on. Right now some people are still buying, but our volumes are going down, even if the prices are high, so our revenue looks fine, but volumes are going to be soft and they’re going to be soft for the foreseeable future because come on, every time you and I talk about memory on here, we talk about like, this is not going to go away until 2028 when more supply comes online. And I think even then you can make the argument because of data center AI that it’s continuing to increase as models continue to get better, agentic AI gets more useful. Meta Muse is spinning up CPU VMs in the cloud and running all this AI. We’re probably not going to get to a point where everything just even in 2028 is just like, oh, hunky dory, like we have all the memory supply we need. So you could ask yourself as a client team, what should we do? And the answer has to be, well, we should be pretty conservative. And we should not overproduce chips here, even though their client team is pretty strong and they sell I’ve got a Dell XPS that has 18A in it, which is pretty awesome. It’s a great chip and everything. And I paid a lot for it. So, it wasn’t cheap, so they made some money there.
Vik: Thank you, Austin. Thank you for bolstering some sales for Intel.
Austin: Yeah, totally. Now, but this is where the internal advantage of having a client team, having a server team and having a foundry, like the client team would raise their hand and say like, guys, it’s not going to help our metrics, but we want to take one for the team. We think things are going to be soft. Let’s be a little conservative here and let’s give those wafers to the CPU team, which would have been perfect, you know, if they stand up and say that a year ago, because in the CPU team, the server team could say great. Our life has been really hard for many years now. AMD is as competitive as ever in server CPUs. They’ve got this high core count product that’s really popular. Agentic AI is coming, you know, maybe they couldn’t have even seen it back in October of 2025. It was a little bit before the agentic stuff really took off. That was more of like the January 2026 call. But already lots of X86 CPUs were being used for head nodes.
And so they could have said amazing. And by the way, Arm chips have been pressuring in the server, in the data center, pressuring Intel as well. And it would have been like, my goodness, this is like divine intervention. We’ve got this huge thing happening where agentic AI, we need all these CPUs. This is perfect. Give us all of your wafers. Let’s plan accordingly and let’s sell as many wafers as we can. Yes, it might hurt our client business a little bit, but we’re going to make a ton of money in data center. Data center demand is inelastic to some extent, and therefore, we’ll sell everything we can make. If it’s on if it’s made on Intel 7, Intel 3, Intel 18A, when that comes for data center, like we’re going to sell it all. We’ll be able to charge a lot. Like let’s go all in on that.
And then the foundry could have said, great, guys, we’re all on the same team. We’re going to take these wafers here, we’re going to give them over there. And by the way, we still need to have enough wafers for our external customers because really that is the long-term story for Intel. That is the true growth potential for Intel. The 2030 story is foundry. So foundry, obviously, could look at this opportunity and be like, I want to give as many wafers as possible to the server team, but we do not want to screw our customers that we’ve worked so hard to convince them. 18AP is great. 14A is coming. It’s going to be awesome. Trust us. It would be the opposite of what Intel wants to do to be like, but except we’re giving all of our wafers to Intel server group because we’ve got this once in a lifetime thing with agentic AI, right? So all of this conversation could have happened. And so I think that’s really what shocked people on the call was when it basically was, hey, we’ve got 18A’s doing great. Austin likes his Dell XPS. We’ve actually got too much of that. And by the way, we don’t have enough server CPUs still.
Vik: You know, this is a big company. I have never seen a big company like that work in concert across its product lines. It’s just a sad manifestation of companies that really become large. They kind of fail to work their different business parts in unison sometimes. So maybe it’s an execution thing. Speaking of execution, there was one thing I was also comparing is basically, Intel 3 yields and cycle times for these wafers, which is basically how long it takes to get wafers through the fab, from start to finish. In the Q2 earnings call, it was like, oh, yeah, it’s exceeding our expectations. Literally, that was what was on the call. And then this time, you can hear Liputan say, yeah, cycle times are good and yield is good, but I am demanding exceptional execution from the team. I’m like, wait, I thought everybody was doing fine. Why do you have to go about demanding execution from them? Are they not doing well now?
So broadly speaking, I like that we’re going through each reason in depth because I think one step leads to another, and this is a good way to progress through what exactly happened. So it’s good thing that we break down reason number one, which is the weakness in the PC segment so much because the idea was that you just shift over wafer supply over to the other side. But when we get to the second point, I’m going to argue that maybe it wasn’t an execution thing. Maybe they had no choice. And the reason I say that is because you can make as many server CPU core chips as you want to. Like maybe you divert Intel 3 wafers away from client CPUs and you go make server CPUs with them. Great. You’ve got like a Xeon 6 processor in your hands. Now, the question is what happens after that? And this is where so many other problems came and haunted Intel all at the same time. It was like when it rains it pours kind of thing.
So the second reason, I think is a good segue into the second reason. See, whenever these chips are made, they’re useless by themselves. This piece of silicon is basically useless, right? You have got to put it with other chiplets that have other functions like IO die is a chiplet that is not made on Intel 3. It is made on Intel 7, Intel 10, whatever. So those chiplets have to be integrated with the core die, which is built on Intel 3. Now, how are they integrated? Now you need advanced packaging. And that’s the whole problem. So even if they had directed all their wafers to Intel 3 and made Xeon 6 server CPUs out of them, there are just not enough substrates. And this is Intel’s reason number two for all their problems. The industry is severely constrained on substrates, and we can cover what these substrates are, but they can’t make server CPUs without these substrates. So what do you say to that now?
Austin: Yes, yes, okay, good. This is a great nuance. So the first nuance you hit, which I think is very important, and we should debate whether Intel should have gone into this level of detail to explain the miss, or not, but it used to be in a monolithic era, maybe back like 2021 and earlier where Intel would just make the entire server CPU SOC on the same node. So, Intel 10 nanometers or even of course back in like the 22 nanometer day, 32 nanometer, 45 nanometer and so on. Let’s just use all the same size transistors, whether it’s IO, CPU, GPU, memory controller, what have you.
Now, we are in an era where the cost, obviously, the cost of every new node is way more expensive. Transistors aren’t necessarily getting cheaper even as they’re shrinking. So transistors are pretty expensive. And so for a variety of reasons, it’s cost effective to say, hey, which by the way, all this IO doesn’t necessarily, a CPU, of course, you want these high performance part, these digital logic parts, you want the smallest transistors you can, you want as many transistors as possible. Like you definitely get the performance gain from moving to the next node. Some things like IO, you might not actually get as much benefit out of going to that next node. So, hey, keep it on Intel 7. That is the right thing to do. Strategically, that is correct. So this is the chiplet, so the disaggregated design, the tiles. Okay, we’re going to make our beefiest parts on the latest and greatest node, 18A or three or whatever, and we’ll keep some of the other stuff on the old nodes. And by the way, maybe those fabs have been like amortized, or we’re helping amortize them over more and more chips because every CPU we make is using its base nodes on three, and maybe it had the IO die on seven. So this is strategically good, strategically correct. And Intel has been able to do this for three, four, five years now. And partially because they have really great advanced packaging and they have EMIB, and that’s how they tie this stuff together. We had that nice conversation with Ravi recently from Intel talking about EMIB.
So all of this is strategically correct. The one nuance, and I never thought about this, is now it means that every CPU that Intel wants to make and sell, whether it’s going to be their future one on 18A, or on three or on seven, they all depend, for example, on Intel 7, or they a lot of them depend on Intel 3. They might have several process nodes. And so now there’s this interdependency where it’s not like, oh, there was a, and we would be remiss not to mention, and people following closely know this, that there was a very, very tragic accident at a fab, I think it was Fab 28 in Israel, there was an explosion, and that impacted some of their supply, and this has ripple effects because now it means that, sure, I maybe I have my dies from Intel 7 or Intel 3 or whatever, but I’m missing other parts, and so I don’t even have all the pieces to stitch them together even if I had the substrates. So that is one interesting nuance and a complication. I think there would have been an opportunity to explain that story concisely in a way to show people that, hey, it’s complicated. We had this tragic accident. It actually has a ripple effect, and it actually impacts like all of our server supply because everyone is depending on on on this node. But then to your point, then there’s the whole substrate problem, which is, yes, even if we have all of these tiles, and even if we didn’t have that accident, the question is, can we get the substrates so that we can tie this all together? To that, I would say the same thing that I would say with memory, which is the substrate issue is not a new issue. So the question is, what’s going on with the planning team? And where when substrates started to become a problem, where did Intel, because if we know this and can explain it, obviously, everyone inside Intel knows the complexities and can explain it. And again, you would have to ask, shouldn’t people raise their hand and say, we’re not going to get enough memory, we’re not getting enough supplies, we’re not going to get enough DRAM. Okay, everyone, let’s sit in a room and let’s plan all of this out. It’s complicated, but we’re going to war room, we’re going to sit down for a week and heads of every team are going to get together and we’re going to figure this out.
Reason #3: The Fab 28 Explosion
Vik: Yeah, that was exactly the conundrum, I think Intel faced, in the last few months. And the reason number three was actually the explosion, and you covered it nicely, and that’s why I said we should go in a logical order here, because reason number two, which is advanced packaging problems, no substrate supply, leads to the fact that the Fab 28 in Israel blew up because of a gas leak. Two people actually died, so this is like really tragic stuff. And those were running input output die, which is what we’ve been referring to as IO die. And if you can’t get them, you can’t piece together the CPU anyway. But then the argument against that is that, look, it’s not the only 10 nanometer class fab they have. They I think they have at least four more fabs that are 10 nanometer class. So could they not source the IO die from those fabs, is one question.
But then for them, this explosion actually happened only in October, right? It’s literally a few weeks ago. So it’s still very early for them to make those kinds of transitions. It’s not like you can switch things over in a day. Frankly, Intel has been known to copy exactly, which means they try to copy fabs exactly the same, so that they all can be like fungible between each other. But then as much as you do it and try to make it exactly the same, transferring one product from one fab to another is always more challenging than it seems on the outside. Because there are differences. You have to make sure that the product is still fine, so you might have to go through a qualification process. Like just because you change fabs and they’re both 10 nanometer fabs, doesn’t mean they have to work the same, and you’ve got to check that they work the same. So there’s some work involved.
So things have been so recent that I think they will recover from the supply issue of the 10 nanometer IO die chiplet, supply issue because they’re going to probably transfer it to somewhere else. Or they will restart Fab 28 and things will go on, as usual, and they’ll hopefully solve whatever caused that explosion. So that problem will be fixed. But anyway, they have lost $300 million just from that explosion, okay? And that’s for this quarter. They expect another 300 million damages or opportunity cost, however you put it. I don’t exactly know how.
Austin: Yes, yes. Okay.
Vik: in the next quarter.
Austin: Yeah.
Vik: Yeah, and and more, and more. I mean, 300 plus, okay. And nobody knows the exact extent of the damage because it’s been like so recent. I’m not sure how long this will proceed. There’s no reason to believe that it’s $600 million and done. If it goes to 700 or 800, I’m not surprised at all.
Austin: Right. So here is probably a missed opportunity as well, which is, hey, by the way, yeah, this happened at the start of October, so we were two months in, so the first two months should have been fine. So there’s a question of how much of some of the server CPU supply miss is directly attributable to this versus just poor planning.
What If? A Counterfactual Bet on Server
Vik: Yeah, that was not mentioned at all. That’s a good point. Intel internally is in a hard place, right? Their CPU client, the PC market is slowing down. It’s going to go down 20% or more just in the next quarter and probably 12% down all of 2026. And then the outlook for 2027 isn’t any better. The memory supply is not going to get better in 2027. And everything is going to still be constrained in the mobile markets and the PC markets. And everybody knows this.
Now, substrates are of short supply and Intel has been trying to get pre-prepayments and like supply commitments from the Japanese substrate makers like Iden or Unimicron and there are like a few of them like AT&S. All these people can make these substrates, but they’re making the investments. So it takes time for substrate supply to come back up, right? So puts them in a hard place. Like think about it from Intel’s point of view. They don’t have the ability to sell into PC market because memory is wrecking everything. They can’t make server CPUs, even though the demand is amazing because apart from the plant blowing up thing and the supply of 10 nanometer being disrupted a little bit, which I’m sure they’ll recover. The bigger problem is substrates are not going to come online. So, what product do you make as Intel? What do you do? All you have to give them is investors is like, look, we’re focusing on the foundry business. We don’t have any solid people announcing, but trust us, bro. We’ve got customers who are waiting to tape out. It’s not a strong story. You know what I’m saying?
Austin: Yeah, yeah.
Vik: Where is your current story? Like how much money are you going to make in the next three months, next six months? The Intel foundry story is a good one, but like you say, it’s a 2030 story. You can’t sell it to anybody in the next two, three months or six months.
Austin: Right. And this is the problem with not planning well in advance, which is and maybe for listeners, you might say, oh, Intel doesn’t have enough Intel 3 supply or they’ve got lots of extra 18A because they’re actually ramping yields quicker on 18A than they expected and the PC’s down and right now all of 18A has been only used to make client CPUs. Can’t they just like quickly use that 18A to make server CPUs? Well, and I’m sure people know this, but just as a reminder, there are different chips that are designed for the different process nodes. So Sapphire Rapids and Emerald Rapids are these server CPUs that were designed for Intel 7. And by the way, let me look at my notes. So the Rapids chips, anything with the Rapids on it is a server CPU with the performance core, so P core. So think like beefy, probably good in a head node, good in your data center, for memory, like heavy, like big databases with lots of that need lots of memory, that kind of thing. That’s Rapids. If it ends in forest, it’s a server CPU with a lot of efficient cores. So these could be good for like agentic CPUs, for example, or just for like traditional serving APIs and that kind of thing.
So, back to what I was saying was like Sapphire Rapids, Emerald Rapids, those are on Intel 7. So if you’re like, oh no, we had this tragic accident, we can’t get enough Intel 7. You can’t just picked up those designs and be like, oh, put that on 18A or something. Like no, it was designed for another process node, of course. Then you’ve got Sierra Forest designed for Intel 3, Granite Rapids designed for Intel 3, Clearwater Forest designed for 18A. So if there’s lots of extra 18A capacity, you can’t just immediately go, oh, pull Clearwater Forest forward because yes, that chip has been designed, but there’s obviously validation, testing, ramping it, that kind of thing. So it’s not so simple to just like, you can’t grab CPUs and just kind of print them wherever you want. So the only about the only thing that Intel can do right now is say, oh, can we take some of our tools from if we are able to if what was the term they used that 18A is underloaded. It can make this many chips, but we actually don’t, we’re not going to make that many chips, even though it can. About the you can’t move a design over to 18A. All about the only thing you can do is take the fab equipment from 18A and go use that to bring up more Intel 3 capacity. So like tools that do etching and deposition, that kind of stuff.
Vik: I buy that in theory, but normally that would take its own sweet time one.
Austin: It does. It does. That is the problem.
Vik: That is the problem. The second thing is that if you’ve got all these machines hooked up and they are currently being used to improve the yield of 18A, which is a very important thing because this is the competitor to TSMC’s 2 nanometer technology. You don’t want to stop that train from moving and go backwards by taking away equipment from 18A. That is like you say, the 2030 story has to be remained because the world needs a foundry alternative to TSMC’s 2 nanometer and 18A is critical to that. So strategically, maybe that’s not the best idea to do to take away 18A.
Austin: Correct. So yes, to your point, 18AP is really the node that externally will be used. So maybe if it was like only for 18A, they could move some of it. But to your point, you do not want to rob Peter to pay Paul. You don’t want to pull away from the future of the company and what the external foundry is riding on just to make some of these old chips to sell right now, right? So you would not This is where they are and these are some of the decisions they’re making. But again, you would have rather seen this and predicted this stuff six months ago and had a backup plan so that you didn’t have to move tools around.
Vik: Yeah, yeah. So I’m trying to think about, maybe this is like an open brainstorm session for...
Austin: Yes. What is Okay, you go.
Vik: The one possible outcome I could think of is...
Austin: if a year ago they made a decision to say, hey, October of 2026, there’s a lot of stuff they couldn’t have foreseen. But even if they waited till back in January when agentic stuff was taking off and you could say, holy crap, this is going to use a lot of CPUs. What if in October 26, instead of having too much client and not enough server, what if they had made a bet to have too much server and not enough client? What if they would have reprioritized things then and said, let’s air on the side of having too many server CPUs and not enough client. What would have happened? Well, if client would have would client is obviously very soft, so they would have ended up fine. Server is very strong, they would have sold it all. I think they would have been totally fine. But even if client wasn’t to soft, client down 20% this quarter and they thought it was only going to be down 10%. And server’s crazy hot and even if that wouldn’t have been quite as hot, I think investors would have given them the benefit of the doubt of saying like, oh, you bet on AI. Good.
Vik: Okay.
Austin: You missed on client PC. I get it. Okay, right? So if they would have made that bet, they would have won today and even if the future wouldn’t have turned out the way that it did, I still think investors would have given them the benefit of the doubt as compared to literally it’s been like five straight quarters or something of saying, maybe even six straight quarters of saying, oh, there’s more server demand than we can meet. Imagine if this quarter they would have said, we actually had too many server chips. We would have been like...
Vik: Man.
Austin: Yeah. You’re paying attention. Good job, right? Yeah, yeah. That’s the only thing I can think of.
The Foundry Story and Long-Term Outlook
Vik: Yes, I agree with that. I think your idea has two downstream consequences. One is that if you planned early enough, first of all, it was very surprising for me that a company like Intel with all its smart people were actually surprised in the earnings call that agentic CPUs had such a demand. I remember like two quarters ago, the earnings call like, oh, wow, look at that agentic CPU demand. We didn’t expect that. I’m like, hang on, you guys know stuff about CPUs, right? You’re the experts. And if you have seen that there is a trend of the open claw and and all this stuff coming up, you kind of have to have an inkling of how it works and what that means for your hardware demand. So that’s the first thing. Why were you taken aback by agentic demand?
Austin: Yes. Okay, let me say something.
Vik: Yeah, yeah, say it.
Austin: Yes, don’t forget your second thing. So we’ll come back to it, but on that one, this could be the biggest downside of Intel not having a competitive GPU. It’s not that they’re missing out on all this money, Nvidia’s obviously crushing it, AMD’s growing and trying to make money, but they’re missing out on those conversations with customers to get as early insight as possible of holy crap, they’re going to need a ton more CPUs. Now, Intel should Intel’s data center department should have those and do have those kind of relationships with Google, with Meta. I don’t know if they have it with Open AI and Anthropic. In theory, Open AI and Anthropic are still running on CPUs that their hyperscalers are buying, but I think that maybe it’s Intel’s lack of a relationship with the model labs in the same way that Nvidia and probably AMD have that put them further behind here. That’s my hypothesis.
Vik: Could be. Could be. So, they being taken aback by CPU demand was taking I was taken aback by them being taken aback. You see what I mean?
Austin: Right, right, right. Yeah, totally. It’s like you have one business. It’s CPUs. Everything else is a rounding error.
Vik: Okay, so they were surprised by it. This was like, I think February or something this year, like whenever the Q1, they were surprised in Q1. Okay, now we’ve entering Q4. So like you say, at that point at least, if they had made the decision to go entirely into data center because memory has already been short since the early this year. Everybody knows this memory shortage is not even new this year. We were short of memory last year, actually. And so everybody knows how HBM works. So you know that memory is going to be short. Now, not only do you know memory is going to be short, you know that if you’re going to make even PC or server CPUs, any CPU needs memory too. So, even if you came across the concept that, oh, wow, we need agentic CPU demand is high. At that time, you should realize that DRAM demand goes hand in hand with server CPU demand. So, DRAM is going to get further constrained. And so what does that mean for the client? The clients cannot pay that price for DRAM, spot prices will increase. And what does that mean for the PC business? Nobody can buy PCs because it’s too expensive. And therefore, we better double down on servers. And what do servers need, by the way? They need this was my second point. They need substrate supply. So, get on the substrate suppliers a year in advance and invest in them. You see what Nvidia does with Lumentum? They’re like, oh, we’re going to optics soon. Here, Lumentum, here’s $2 billion. Go do something with it, right?
Austin: Right. Now, of course, Nvidia has a lot of cash and Intel cash is tight. But if not invest, pay a premium for those wafers. Pay more than TSMC. I don’t care. You can show up on the earnings call and you can say, I met all the supply, but our ASPs were really high and therefore the market was a little bit softer than we expected. But I had the supply because I got the substrates. How’d you get the substrates? I paid a premium for them, right? Like take that kind of risk. We’re going to have the supply, it’s just going to be expensive. Our costs were too high. Our margins.
Look, okay, because here’s let me give some there’s lots of positives for Intel still. The foundry’s looking great. We were in a position two years ago where everyone was like, oh, five nodes in four years, I think it’s going to crash and burn. I don’t think they can make I don’t think 18A is going to work. I don’t think 14A is going to work. And now people are like, no, I think that stuff’s going to work. The question is just how much can they make of it, right? And so I think the best thing Intel could have done is said, we can make stuff. It’s really expensive right now and we have to get better at yields and we have to negotiate down our suppliers and that kind of thing, but we can make stuff. But when your whole even 2030 story is about making stuff and you don’t have enough of the right stuff, that’s where people are concerned. And then, there’s the question of is it does that ultimately come down to foundry and then should we be concerned about them not being able to make the right stuff for their customers? Or were they prioritizing their customers and it’s, this was they purposefully, did this, or is this a product planning thing where the product team, as we just talked about, should have said, we’re going to need more CPUs, agents, we’re going to need more memory, we’re going to need more substrates. So should the product team have been driving this? I don’t know.
The best case sort of like quote unquote blame, ultimately at the end of the day, it’s all Intel’s problem. They’re all on the same team and this is all falls onto the. The best thing is that the product team should be if they’re the ones that were misplanning, then foundry is just like, hey, we’re trying to serve all of our customers and this is yet another customer who didn’t give us the best forecast. So we need to get better at like validating our customers’ forecast. But if it has to do with foundry at all, then that starts to get concerning again, which is I thought the 2030 story is foundry. If you can’t even plan capacity for your biggest customer, Intel, which you guys share up cubicles, how are you going to do this for everyone else?
Vik: Yeah, that’s an argument. But going forward, I think long term there is still, 18A will eventually be adopted somewhere, somehow because if this AI build out continues, I find it hard to believe that the entire thing can all those gigawatts can be fulfilled with just TSMC making chips. Somehow it seems like that’s not going to happen. Like somebody somewhere has to start making 18A chips. And they will unlock a whole lot of capacity for Intel and hopefully that helps. It’s just not happened yet, but I hope it happens in the future. 14A is very good. As far as I can tell, it’s in high demand as well for mostly like mobile applications. Mobile applications are the ones who usually go for the most cutting edge technologies because they the energy saving is the most there, right? So, it’s very important for phones.
Austin: Correct. Yes. That so the yeah, looking forward, unfortunately, 2027’s not going to look good. We would love if a customer came out and said, I’m committed to 14A, that would help draw attention over here and not over here on the fact that there’s still not enough supply and that the client PC is still soft. We probably aren’t going to get that. But that would be the dream scenario. In the meantime, if I was Intel, yes, they would be able to make mobile chips, which would be great. They also make high-performance CPUs and so they could say, we’ll make anyone CPU. And I think they actually did. There’s a little bit of talk of custom ASICs, which is a very broad bucket, by the way. And they talked about making X86 CPU IP that you could someone else could instantiate, I believe. Did you hear that on the call? So it’s like if I wanted to make an X86 core in a custom product, I could instead of Arm or RISC-V. So there’s probably like more to lean in there. But I don’t know. I’d just be like, hey, we can make high-performance CPUs, we should be able to make high-performance accelerators, like you think they’d try to go after accelerators on 14A too. And this whole custom ASIC thing, which I don’t think is XPUs, I think it’s more like a custom networking chip or a custom CPU, make it tweak it a little bit. Obviously, if they could make XPUs on 14A, that would be amazing.
Vik: But you know, as a foundry business, there’s nothing stopping Intel from making Arm processors, right? Like they just stamp it.
Austin: And they said as much. And in fact, when they prove, when they like do test chips to show how good 18 AP is or 14A, they make Arm cores so that you can compare like apples to apples, say built on Intel, built on TSMC, here’s how this Arm core does.
Vik: Yeah, so if any Arm company, Arm itself wants to go and possibly make it on Intel, that’ll be interesting actually. The dynamic of Arm making a Arm CPU in an Intel foundry is just, I don’t know, it’s weird. It’s just weird.
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Austin: EMIB and advanced packaging. Hopefully, maybe in the next couple quarters we could get some more good news of other people taking even TSMC tiles but having them packaged in the United States. You know, made in TSMC Arizona packaged by Intel in New Mexico and shipped. That those would be hope stories that would be promising and again, continue to show that 2030 thesis playing out.
Four Lessons from the Intel Saga
Vik: Yeah, yeah. Since we’re getting down to the wire here, I wrote down a couple of lessons I learned from this whole episode, because I feel like it’ll apply everywhere. And it doesn’t have today it’s Intel. Tomorrow it could be any company to be honest, because a lot of these themes go across everybody and every company and every investor, right? So the one thing I was thinking about and that came up in my mind was lesson number one I learned was demand itself doesn’t mean anything. Like Intel still has demand for their CPUs. People want Intel server CPUs. And the market has been pricing in just demand. Oh like, oh, look at how much demand we have. This happens so much across like the optics industry or whatever. We have demand, but we can’t meet supply. And everybody’s like stuck up because like, wow, imagine what would happen if they could meet the demand. So much demand, they’re going to continue to print money because customers are waiting out the door. It’s exactly like this, right? Like there’s a restaurant down your road and you go there, it’s like there’s a long line out the door. And immediately you go tell all your friends like, oh, I found this great restaurant down the street. But the question is if you when you go to stand in that line, are you ever going to get to eat before you die of starvation? Probably, you’re not going to get to eat for like one or two hours just the weight line. Then you ask yourself, was it worth it? This is what is happening. Everybody has demand, but no supply. And so this is what happens. Sometimes, Intel is in that situation. So it doesn’t matter if you have demand. So I think something to keep in mind.
So second thing is within a company itself, I think AI can help one business, like server CPUs in this case, and hurt another. Like the client business, the PC business. Because the server CPUs are sucking up so much resources from the ecosystem overall that it affects their own business on the other side. It’s kind of funny how this works, but that can happen to a company, right?
Austin: Yes, let me jump in here too. What just popped in my head was the funny thing too is that on the client side, in theory, if AI PC was really a thing, the client side should be hit even worse because you’d be like, no, I really want to run local AI and therefore I need more memory. But like memory’s crazy expensive. So this actually, I had a tweet that said Intel should retire the term AI PC and it’s not just Intel, it’s Microsoft and everyone. Because no one’s actually running really LLMs locally and that’s fine, but don’t sell the value prop of this is an AI PC and you can do AI locally. Actually this would have not only been a good time to do it just because it’s not true for the last three years, but also because memory is so expensive, you don’t want people to think, oh, an AI PC has all this memory because it’s going to run all this stuff locally and therefore I should definitely not get it. You know, just retire that and come up with something else and make it clear that it doesn’t have to have a ton of memory, maybe next quarter. But carry on with your lessons.
Vik: Yes, lesson number three I came up with that I can see going forward is that just like beating earnings and it used to be enough, company did well and stuff was good. But a lot of times I think nowadays that is not enough and there is an expectation that outruns reality. And I’m not saying that’s a good or bad thing. It’s just like a fact of the investing markets at this present time. Just an observation. It’s good to keep that in mind. Like good numbers always doesn’t mean good things for the stock, right? Like from an investor perspective. And finally, the market at this point, we are reaching a boiling point in the industry where people are asking for returns. going to come asking for the receipts and that’s going to be important, right? So, I think that’s my big takeaways here. Things are changing. The tides are the excitement is leveling off and people are starting to ask for the receipts overall. And that affects materially how we view a lot of companies in this space, not just Intel.
Austin: So to recap, the market is in an interesting position. Lots of things are happening externally. So to Intel’s credit, yes, they’re down 30%, but the whole market is also down broadly. Interest rates are high, there’s a ton of volatility. People are starting to demand returns. You can’t just promise, hey, we have high demand, you have to meet the demand. You can’t just have a good quarter, you have to show that you will continue to have a good quarter and that a good quarter now, but a soft quarter tomorrow, investors are smart and they’re going to see that. I think the same thing could even hit Apple, they’ll have some good quarters, but memory will impact them too. So it is tough to be Intel. They’re managing making their own wafers, tragic accidents, all these different process nodes, depending on all of them. They’re managing substrates, they’re managing memory. They’ve got a server business and a client business that are very different in elasticity, and then on top of it they’re trying to stand up an external foundry, which they can’t talk about really. So we have to play investigator to try to figure
