Intel finally delivers good news to Wall Street

After a disastrous second-quarter earnings report in August that turned into the worst trading day for the company's stock in 40 years, Intel ( INTC ) CEO Pat Gelsinger finally got some good news for Wall Street.

On Monday, Gelsinger announced that Intel had entered into a deal with Amazon Web Services that would see the chipmaker build custom chips for the cloud computing giant.

The CEO also said that Intel will convert its foundry business into a subsidiary company with independent directors. A foundry is a manufacturing facility for semiconductors. The move is intended to create a clear separation between Intel's design and manufacturing businesses, giving Intel's foundry customers peace of mind that its design teams won't have access to their chips.

Not all of that. Intel also confirmed that it has committed $3 billion in funding from the CHIPS Act. In a release, the company said the deal will “secure and support the domestic chip supply chain [Department of Defense] To help increase the resilience of the U.S. technology system by advancing secure, state-of-the-art solutions.”

It's not all positive news for Intel, though. It is in the middle of a massive restructuring plan, which includes laying off 15% of its workforce. The company announced Monday that it has put some plans to build new facilities in Europe on hold. And while it will complete its advanced packaging hub in Malaysia, Intel says it won't open the factory until demand improves.

Then there's Wall Street. While shares of rivals like Nvidia continue to rise, Intel's stock is down 57% year to date.

“I wouldn't say they're out of the woods yet,” Daniel Newman, CEO of Futurum Group, told Yahoo Finance. “But I would say additional funding sources, additional partner announcements, a clear framework for outside partners to invest are all the right moves.”

Intel's foundry business gets a boost

Intel is a rarity among semiconductor giants in that it both designs and assembles its own chips. Nvidia ( NVDA ), AMD ( AMD ), and Qualcomm ( QCOM ) each work with third-party manufacturers, namely TSMC, the world's largest advanced chipmaker.

Intel is looking to grab market share for TSMC, and to do so it's making chips for itself and third-party customers. Before the Amazon ( AMZN ) news, Microsoft ( MSFT ) was Intel's most prominent manufacturing customer. Adding another marquee name, however, helps further establish Intel's credibility as a chipmaker that can assemble semiconductors based on customer needs.

Intel finally delivers good news to Wall Street — Intel CEO Pat Gelsinger speaks during an event called AI Everywhere, Thursday, Dec. 14, 2023, in New York. (AP Photo/Seth Wenig, File)

“Intel says it will have operating guidelines and independent board members that will be completely transparent,” Patrick Moorehead, CEO and principal analyst at Moore Insights, told Yahoo Finance. “And I think if they get the right contract, the right operating rules … I think they have something here. I really do.”

Intel's foundry moves will also give the company an opportunity to seek outside capital for the business.

“The foundry business will now potentially be able to access outside sources of funding; Provides struggling business lines with the ability to raise capital and ideally permits [Intel] Maintaining a balance between continuing to focus on production capacity without offsetting core business performance [long-term] Growth potential and [short-term] profitability concerns,” Stifel analyst Reuben Roy wrote in an investor note following Intel's announcement.

But Intel's foundry business has reportedly suffered setbacks. According to Reuters, Broadcom, which is evaluating Intel's manufacturing processes, was disappointed with test runs of Intel-made chips. Getting Amazon onboard, however, shows that Intel's manufacturing is working for certain customers.

Intel's work with the Department of Defense, meanwhile, illustrates that the government views it as an important supplier for its most critical components. Semiconductor assembly plants, Gelsinger said, will play as big a role in geopolitics in the next 50 years as oil refineries did in the previous 50. And Intel is set up to play an important role for the US.

The new chip will test Intel's market power

Intel's foundry business alone won't determine its future prospects, however. Its AI and data center segments also need to step up after the company earlier erred on the side of high-powered chips.

According to Moorhead, Intel's gaudy AI processor didn't catch on with hyperscalers like Amazon, Google and Microsoft because those companies used or started working on their own AI accelerators after it was released, giving them little reason to buy Intel's offerings.

17 September 2024, Saxony-Anhalt, Magdeburg: Excavators stand early in the morning at the construction site where chip manufacturer Intel wants to build a chip factory. Intel is delaying the start of construction on its 30 billion euro chip plant in Magdeburg. Group CEO P Gelsinger announced a delay of almost two years. Photo: Klaus-Dietmar Gabbert/dpa (Image credit: Klaus-Dietmar Gabbert/Getty Images) — Excavators stand at the early morning construction site where chip maker Intel plans to build a chip factory.

Intel has a new GPU coming in 2025 that could compete with Nvidia and AMD's data center chips, but it will need to regain consumer confidence if it is to gain any market share.

Then there's Intel's Client Computing Group, which is responsible for the processors that power desktops and laptops around the world. The segment still makes up the largest chunk of the company's revenue, but faces stiff competition from rivals AMD and Qualcomm's upstart PC chip businesses.

To combat this, the company debuted its Core Ultra 200V line of chips earlier this month. Intel says it packs the kind of performance and battery life customers are demanding, and puts the chips up there with the likes of Apple's custom processors, which have won fans thanks for their own powerful and energy-efficient designs.

Now Intel needs to make sure the Core Ultra 200V series lives up to expectations when new laptops start hitting store shelves this fall. If it can do that, and continue to sign up customers for its Foundry division, Intel could soon find itself back on the upswing.

“It's a good start,” Newman said. “I think anyone who tells you they've turned a corner … is probably clueless. But I will say, if you're looking for some kind of roadmap or signal, the Ruben Roy direction below is clear.”