Intel faced one of its toughest sessions in the stock market, as its market value plummeted by about 28% on Friday following the company's announcement of weak fourth-quarter financial forecasts. This decline led to a $12 billion drop in the value of the U.S. government's stake in the company, a 10% stake acquired by the U.S. administration over a year ago.
Reasons for the Financial Decline
This sharp drop is attributed to Intel's warning that its fourth-quarter revenue will range between $15 billion and $16 billion, a figure below analysts' expectations of $17 billion. The company also lowered its gross margin forecast to 37% instead of 43%, with expectations of failing to achieve positive cash flows due to massive expansion in investments.
Impact of the AI Boom on the PC Market
Intel CEO Lip-Bu Tan explained that the main problem lies in personal computer (PC) sales being negatively affected as the artificial intelligence industry consumes memory resources and essential components, leading to higher PC prices and increased pressure on already limited IT budgets.
What is Changing Practically?
Despite the negative performance in the PC sector, Intel recorded a 78% growth in data center revenue compared to last year. However, the company faces challenges in increasing the production capacity of its factories (Fabs) to attract more external customers and compete with Taiwan Semiconductor Manufacturing Company (TSMC). These plans remain long-term, as Intel's new factory in Arizona is not expected to enter full operation until 2028.
It is worth noting that Intel's stock still yields overall profits for the U.S. government and NVIDIA (which holds a stake in Intel) exceeding 70% since the beginning of the year, despite the recent decline from the peak levels the stock recorded during the summer.