May 26, 2023

The price of Intel (INTC) shares slumped on Wednesday after a rival firm’s earnings rocked the market.

INTC – Daily Chart

INTC – Daily Chart

INTC shares dropped over 7% but clawed back some of their gains. The stock now has support at the $24.87 level.

Rival chipmaker Nvidia rocked the chip market with earnings that showed a net income of 26% higher, with higher revenue than expected. But the real story was a 50% increase in its second-quarter outlook. Analysts expected to see revenue around $7 billion in Q2, but management predicted $11 billion due to “surging demand” for its products. 

Analysts had questioned the company’s valuation after a 100% rally this year, but the stock surged another 20% after the release. 

The company is seeing a sharp increase in demand due to the artificial intelligence hype. The chip sector is also witnessing a change due to the technology required. 

Intel has led central processing units (CPUs) while Nvidia was in the graphics processing unit (GPUs) market.

Nvidia’s CEO Jensen Huang was also bullish on the outlook for GPUs. “The flashpoint was generative AI,” Huang told CNBC. “We know that CPU scaling has slowed, we know that accelerated computing is the path forward, and then the killer app showed up.” 

Nvidia’s earnings also reported a record for its data centre revenue, and the company added more gloom to the potential for Intel’s CPUs, saying that GPU data centres will be the future. 

“In 22 years of covering tech stocks and large-cap we have NEVER seen a guidance range of this magnitude on a large-cap tech name,” said Wedbush Securities analysts. 

Huang said Nvidia’s recent performance was down to “two simultaneous transitions” in accelerated computing and artificial intelligence. 

In the accelerated computing transition, we heard that Nvidia was also working with a UK university to build a supercomputer driven by its CPU. That could add competition for the likes of Intel. 

Traders can look for more downside on Intel as analysts and investors react to a sea change in the chip sector.

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