00:00:02 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 00:00:09 Speaker 2: This is a breaking news update from Bloomberg. 00:00:12 Speaker 3: Instant reaction and analysis from our three thousand journalists and analysts around the world. Here's how in King Ian King, who's been covering this company and this sector for many years, put it. Intel delivered a surprisingly strong revenue forecast for the current period, indicating that a surge and data center spending is helping fuel the chip makers turn around. The outlook underscores Intel's gains with data center customers, which are clamoring for chips to satisfy demand for AI computing. Sales in that segment sort fifty nine percent last quarter, more than double the pace of Intel's overall. 00:00:48 Speaker 1: Right now, chief executive officer, the bhutans and the CPU is taking off in data centers. All right, let's get to it back with us. As of course, Man Deep seeingh with our Bloomberg intelligence team. He oversees is tech research here, Global tech research for our intelligence team. This looks like a really strong report. 00:01:05 Speaker 4: It is, and it's led by something we all expected. Data centers. You know, that's where you are seeing the demand. We saw that in UH Google's results yesterday and UH Look, the CPU side is something that Intel has had a monopoly. 00:01:23 Speaker 2: Over the years. 00:01:24 Speaker 4: They obviously lost the plot, but now, uh, they seem to be coming back. The only thing I'm not very sure about is how it translates into sustainable demand because everyone else is also making CPUs, whether it's in media, whether it's Google, uh, you know, even the likes of AMDs, they're all focused on CPUs. So Intel is not a monopoly that it used to be. And that's where the sustainable expectations going. 00:01:55 Speaker 2: In the quarter were really low. So they did beat that. 00:01:58 Speaker 3: So then why are why are people buying Intels rather than AMDs or in videos like what if this is? 00:02:04 Speaker 5: Is it a commodity? This part of the business. 00:02:06 Speaker 4: So if you're just looking for a CPU, Intel still has that foundry where they make the most CPUs, and it makes sense for anybody to go to Intel if you're looking for systems, which is what Google said. They're selling TPU systems now, right. A TPU system has got an accelerator, it's got CPU, it's got networking, it's got everything. That's what all these companies are doing with their data centers now because they're selling a complete system where CPU is one of the building blocks. Intel is not selling you a system, They're just selling you a chip. 00:02:41 Speaker 2: Kind of says to me. 00:02:42 Speaker 1: Not a great business plan, is it. So how do you make sense whether or not. 00:02:48 Speaker 4: I think it's too early to compare Intel to the like Sofa and Video or you know what Google told us with their TPU systems. It's still a very early stage opportunity for Intel. On the data center side, again, expectations were really rock bottom. So they came out they beat that data center number by seven hundred million. Great, But if I look at the sustainability of what you Google plans to do or what Nvidia plans to do, Intel is not in that category yet. And that's where you need for them to execute much better on the data center side, in terms of having a GPU, having more on the networking side, having a system's play, which is what we are hearing from AMD. By the way, That's what AMD is after, That's what Broadcom is after. So I'm not ready to put Intel in that basket of companies that have systems. 00:03:45 Speaker 2: Opperately, they need to get there. 00:03:47 Speaker 4: I think it's a big challenge. I mean, you have to remember Intel underperformed for a period of five six years where they just had things going down. So for them to come back, it's going to take a while. I mean the foundery side is where they could get help from the US government's stake, and you know there could they could land more customers in terms of founder usage. But in terms of again comparing them to someone like Nvidia, we are far off. 00:04:16 Speaker 5: From should we compare them to in video? 00:04:19 Speaker 4: I mean, Nvidia is making their own CPUs, and Nvidia will tell you they already generate up to twenty billion dollars by selling CPUs as part of their system. So Intel has Nvidia has already surpassed Intel in terms of, you know, the CPU side of that equation. So what to. 00:04:37 Speaker 1: Tim's question or Tim's point, man deep like, what is again the role of Intel in the future in the world of semiconductors. There's still value there, there's still a good business there. 00:04:50 Speaker 4: Yeah, So think of it as traditional data centers versus AI data centers. 00:04:57 Speaker 2: For all the traditional data centers, Intel. 00:05:00 Speaker 4: Is great because they have those servers that companies were using that they need to refresh and now Intel has the ability to give them the latest servers that, by the way, you need latest CPU servers to run these agentic workloads. So when you deploy AI so far it was just training for inferencing, you need CPUs and that's where if an enterprise is looking to refresh their old servers, they'll go for Intel. They won't buy in video systems because you don't need to do that for your traditional data centers. You buy Nvidia systems for your AI data centers, which need a lot more power, which have different specs altogether. 00:05:44 Speaker 1: So who's their biggest competitor then in that particular universe? 00:05:48 Speaker 2: Amd? 00:05:49 Speaker 4: Yeah, okay, but AMD just talked about how they are focused on that system's opportunity to so everyone realizes the larger opportunity is a data centers, it's not your traditional data centers. So that's where the sustainability of this growth. I mean, we are coming off a very low base. So yeah, they grew, you know whatever, sixty percent, that's great, But can you sustain eighty percent type growth that Nvidia has shown they can. 00:06:18 Speaker 2: Over a period of time? And that's the real question here. 00:06:21 Speaker 5: So this business that. 00:06:22 Speaker 1: Seems to be kind of unique to Intel for those who are kind of doing upgrades right on their data centers for inferencing. I mean, at some point does that go away and people are more focused on the bigger data centers or no companies are going to need it. 00:06:38 Speaker 4: You need more compute. The question is how much is Nvidia going to sell in terms of CPUs versus how much opportunity is left for Intel as a standalone CPU provider, because remember Nvidia is bundling everything. Google TPUs are bundling everything and saying CPUs are just one component of agentic workloads. Yeah, so why would enterprises keep buying from Intel where they have to get other components from other providers. 00:07:08 Speaker 3: The stock is up, I mean, this was the best perform sorry, the third best performing stock in the S and P five hundred, Yeah, in the first half of the year. But this month it's just gotten crushed. And part of that has had to do with just how how much it's run high. I mean, this was a stock that was on June twenty second at one hundred and forty one dollars per share. Now it's at about one hundred dollars a share. As of the clothes if you're take into account to move high right now, it's at about one hundred and. 00:07:32 Speaker 5: Eleven dollars per share. 00:07:34 Speaker 3: What was the weakness this month that had investors thinking that, Okay, the bar is actually pretty low for this report. 00:07:41 Speaker 4: Expectations overall semis as a complex, I think corrected. People took a lot of profits. We even saw the memory names go down, so I don't think there was anything unique to Intel over there. But with that being said, things have come back on the semi side, you know, very quick we had. It feels like we had somewhat of a correction and then things rebounded fairly quickly. And the Google report with them raising capex, I'm expecting every hyperscaler will raise capex, will get what all the semiconductor names will catch a bit because of the capex increase. 00:08:17 Speaker 3: Okay, you mentioned Alphabet, and we're supposed to be talking about Intel right now, but you mentioned Alphabet, so we'll go there. 00:08:21 Speaker 5: Alphabet just got crushed today. 00:08:23 Speaker 2: Why because they're raising their capex. 00:08:25 Speaker 5: But raising capex is good. 00:08:28 Speaker 4: It's good for the semiconductor companies, not for someone like Alphabet. 00:08:32 Speaker 3: Right in the past, it's sometimes been good for a company like Alphabet because it indicates demand and you know, when they spend that money, they will to build infrastructure. That infrastructure will be used and generate revel. 00:08:43 Speaker 4: Yeah, and they are showing that in their cloud segment. We talked about how fast it's growing eighty two percent. But market will always get nervous when you are talking these big numbers. I mean, we are talking about trillion dollars in capex by these five big hyperscalers next year. That's a twenty twenty seven consensus number. 00:09:02 Speaker 1: Can we say? Because I think people think about the spend on AI and the build kind of akin to building out you know, energy markets. Right, It's it's expensive to do this stuff and you have to think about the longer term trend. But have the tech sector been burned enough like the oil patch? 00:09:22 Speaker 2: Yeah? 00:09:22 Speaker 1: I mean semiconductors certainly have seen the booms and bus they haven't. 00:09:26 Speaker 4: I mean you drew the comparison to the energy markets and the oil market. Those are regulated companies. Imagine after all this spend. Yeah, if these companies became regulated and guess what, you can't really maximize your profits anymore, that would be very interesting, you know. So there's always that risk with these large ended models. The government may decide these two companies are too powerful in terms of the models they have developed, they need to you know, limit their hold and that's a big risk it comes to those copecks. 00:10:01 Speaker 1: With we already have a government that's looking at the power usage and thinking about what their responsibility is. Right, some of the tech companies in terms of data centers, I. 00:10:08 Speaker 3: Want to bring in Ad Ludlow, the host of Bloomberg Tech. You're standing by in San Francisco and you spoke to Dave Sisner, the Intel CFO. You also spoke to lit Bhutan, the CEO of Intel, along with Ian King and some reporting on the terminal. What did you learn from them in their commentary that sort of adds to what we heard in terms of numbers from this quarter. 00:10:26 Speaker 6: Yeah, I mean this is a CPU story, right. There's just very high data center demand for CPU and that is the game that Intel's in. It's the part of the AI story that they have been able to get and hold onto. And you know, right now, Intel's in a position where it's doing everything it can to improve its production. You know, they are in a place where demand for their CPUs in the data center server context is outpacing their improving supply. So they're doing a better job. But they're still leaving a bit of money on the t able because they just cannot meet one hundred percent of the orders that are being placed. That is, as lit Boo put it, a good problem to have. But right now, if you look at the aftermarket trade completely in line what Mandi it's been outlining as well. It is the capital expenditure story. Once again, it's kind of moving the needle. 00:11:17 Speaker 1: Here because people have to buy and they have to buy from Intel. 00:11:21 Speaker 4: Is that it? But Intel has the foundry capacity to produce that. So if they're complaining about supply, Yeah, to me, that's surprising. 00:11:29 Speaker 2: You've got all the fabs. 00:11:30 Speaker 4: You're not going to TSMC to make those CPUs, right, So I'm a little surprised there. 00:11:36 Speaker 1: What would be the question then you would be asking LiPo like. 00:11:40 Speaker 4: Why is there way for shortages for your own CPUs? Like you have the foundries that are based here in the US, why can't you ramp them up faster to meet the demand that you see? 00:11:55 Speaker 5: What do it? Just ramp it up? Come on, though, you. 00:12:00 Speaker 1: Know, as we continue to go through these numbers, what else is jumping out for you? 00:12:04 Speaker 5: Yeah? 00:12:04 Speaker 6: Well, just on and Deep's point, I think you know a quarter ago when I spoke to Libby on the phone, he was very honest that they had not been doing a good job, like they were not very good at building their own products, and that is a problem. And I think what he's saying now is that that's getting better. They are improving their own supply, but they're not yet that they yet, you know, it's a process. I think the other thing as well, you know, with Intel, you know the foundry business, we still don't have anything concrete on which technology companies around the world are customers of Intel for foundry and their latest processes. But if you think about the capex guide, So what Dave's into the CFO told me is that capex this year will now be higher about twenty billion dollars. The previous guide was about eighteen and it would also represent your on year capex growth. But he also absolutely underscored that lit Bhutan is a very cautious guy. He does not employee capital and improve or increase capex unless he's sure he's going to get a return on it. And so that's what they're trying to argue for now that they see demand enough where they're willing to spend on the tooling side, specifically, not the space side, to increase that capacity because they think they have the customer customer demand there. 00:13:19 Speaker 5: But man deep. 00:13:20 Speaker 3: But you know, as Ian King has reminded us over and over again, this stuff can be cyclical, and Intel has learned the hard way that the investments don't always pay off. They have a do they have to tell investors a different story that this time, we know that where we're spending the money is the right place to spend the money. 00:13:41 Speaker 2: I mean, right now, I think. 00:13:44 Speaker 3: Or is everybody's just throwing money at everything and it's fine. 00:13:46 Speaker 4: Everyone realizes the demand is huge. And you know, if there's one common thread across all the narratives we hear is the demand for our strips supply. So why would you not be doubling down at this time, especially for something where you had a monopoly in the past, until there is a product related reason, Like I said, you know, if it's a systems aspect where you know companies are not going to buy CPUs from you because they want more systems level the type of product, then I understand. But without that, I see no reason why they wouldn't be aggressive on Kapex just because there is demand and they have the FABS. 00:14:28 Speaker 1: Well, I love low. I mean the Bhutan being cautious and careful. Might that be a you know, not as downfall, I'm not going to say that, but problematic when if the demand is there, as we're just talking about with men deep, you know, you want to spend to kind of make sure you don't miss out on that. 00:14:45 Speaker 6: Yeah, I mean they again are going on the data they have available, which is customer demand. You know, they have this line Intel which is so consistent on which is like when a customer signs up to use our latest chip making process, we don't announce it. We leave it to the customer. Problem for them is none of the customers have announced it. All they'll say is that they signed loads of deals, loads of LTA's they call them in the first six months of this year and they were like, okay, so we have the deals. That gives us confidence to invest. I think, you know, I think we'll learn more overnight. Right, all of the cell side notes will come out, whatever questions get asked on the call give you a sense of the psychology of where the cell size at. But it is astonishing that the stock's up twelve percent in after hours, given it was up one hundred and seventy two percent going into today's close, It's like, but it. 00:15:36 Speaker 5: Got to eat up. But ed it was at what over one thirty a few weeks ago? 00:15:40 Speaker 6: It was or so in the last year, right, I mean, you know, one week a market does not make the pro session of market doesn't make. But you know, to answer, you know, there was a point in history where Intel was the absolute best at this, Yeah, and they had sixty percent margins. They're not near that, right, There's still like a lot of stuff to fix here, and I don't think they're saying that they're close of that. They're just saying that they're making progress. 00:16:03 Speaker 1: Final thoughts as we wrap up from you, Mandy, I mean I would like to see a backlog number alluded to LTA's. 00:16:10 Speaker 4: Like with Micron, they signed ltas, but they also gave visibility into pricing and how much that backlog is in terms of those ltas. So if Intel really has that sort of visibility with their customers the ltas, then they should give a backlog number so that Street can model that. You know, Okay, this is how CPUs will ramp up to me. Really, it's about sustainability of growth here once the numbers get normalized, because we are coming off a really low base here. 00:16:40 Speaker 1: Now that's a really good point, right, you got to think about where we're coming from. 00:16:43 Speaker 5: Ed. 00:16:43 Speaker 4: Final thought. 00:16:45 Speaker 6: Just that you know, they'll be pushed on giving more detail on customers. Something that did not come up, and I really, you know, I think it's interesting is you know, we haven't discussed terror fab and the partnership that's in place with Musk, and you know, it's unlike Litboo just kind of talk openly about that. But I would say that ASML got asked about it, and last night Musk was name checking Micron all over the place, so it could come up. And to me, that's you know, Musk is news and there we go. 00:17:13 Speaker 1: Nah, it never makes news. Good stuff. Guys, Hey, thank you so much. Of course, our Ed lolo out there in San Francisco. He is host of Bloomberg Tech and our man Deep sing right here. 00:17:23 Speaker 4: In our studio. 00:17:24 Speaker 1: He's a Bloomberg Intelligence Global Head of Technology Research. You guys, thank you, thank you,