Intel Corporation (NASDAQ: INTC) saw its shares decline 1.4% to $121.77 during Wednesday's regular trading session and slipped further to $119.70 in after-hours activity, as market participants digested news that Chinese tech giant ByteDance is developing its own central processing units (CPUs). The development adds a new layer of uncertainty for Intel, which has been riding a wave of optimism tied to AI-driven demand for its processors.
According to a Reuters report, ByteDance is working on its own CPU designs as Intel and Advanced Micro Devices (NASDAQ: AMD) have raised prices by 10% to 35% quarter-over-quarter in recent months. The price hikes, driven by steady demand, higher component and material costs, and market trends, have prompted some customers to explore alternatives. Intel acknowledged that certain product prices were updated due to these factors.
The Philadelphia Semiconductor Index fell 1.4% on Wednesday, retreating from a record high set the previous day. Other chip stocks also pulled back: Nvidia (NASDAQ: NVDA) dropped 1%, and Qualcomm (NASDAQ: QCOM) tumbled 6%. The broader market, however, saw Wall Street's main indexes close at record highs, indicating a rotation away from semiconductor names.
U.S. stock index futures traded lower Thursday as traders focused on the release of the Personal Consumption Expenditures (PCE) price index, the Federal Reserve's preferred inflation gauge. Additionally, renewed tensions between the U.S. and Iran weighed on sentiment. "A higher-than-expected print will further boost hawkish Federal Reserve expectations," said Ipek Ozkardeskaya, senior market analyst at Swissquote Bank.
Intel's recent bull run had been fueled by expectations that AI demand is shifting back to CPUs from graphics processing units (GPUs), as CPUs power the servers behind AI queries. However, the ByteDance news suggests that chip shortages and high prices are pushing customers to develop in-house solutions, potentially undermining Intel's pricing power.
"After such a large run-up in the markets, it's not surprising to me that there is a little bit of a pause," said Sean Clark, chief investment officer at Clark Capital Management Group. Adam Turnquist at LPL Financial noted that tech leadership remains hard to miss, but momentum and positioning are becoming stretched.
Intel's shares have dropped from their May 11 high of $132.75. The company's first-quarter demand for CPUs among AI service providers was strong enough that Intel sold off chips it had already written down, according to a Reuters report from last month. CFO David Zinsner mentioned that Intel moved "de-spec product or legacy product." At least 23 brokerages raised their price targets after Intel's earnings and guidance.
However, the manufacturing landscape remains uncertain. "TSMC is the real bottleneck," said Doug O'Loughlin, president of SemiAnalysis, noting that chip designers are searching for other options. Seaport Research's Jay Goldberg cautioned, "No company in history has ever fallen off the Moore's law curve and made it back on." J.P. Morgan's Harlan Sur said measuring Intel's progress could take 12 to 18 months, and it might be five years before the foundry business proves profitable.
Looking ahead, risks include more customers like ByteDance pursuing in-house CPU development, sticky inflation prompting further rate hikes, or a slowdown in the chip boom. In such scenarios, Intel's edge on chip prices could fade. The next phase for Intel may depend less on the AI narrative and more on whether investors see its demand translating into sustainable profits.
