Intel Q1 Forecasts Fall Short as Demand for AI Chips Surges

Intel has issued a disappointing forecast for its first-quarter revenue and profit, falling below market expectations. The company struggles to meet the soaring demand for traditional server chips that support artificial intelligence (AI) data centres. As a result, Intel’s shares dropped by 7% in after-hours trading following the announcement.

The semiconductor giant predicts revenue for the current quarter will range between €9.96 billion and €10.8 billion, while analysts had anticipated an average of €10.65 billion. Additionally, Intel expects adjusted earnings per share to break even, contrasting with the market’s expectation of adjusted earnings of €0.05 per share.

Challenges and Market Dynamics

The rapid expansion of data centres by major technology companies, aiming to enhance their AI capabilities, has led to increased sales expectations for Intel’s server chips. These chips are often used in conjunction with Nvidia’s leading graphics processing units (GPUs). However, as David Zinsner, Intel’s finance chief, noted, the demand for AI has caught many cloud-computing giants off guard, resulting in a scramble to upgrade outdated chip inventories due to a noted “erosion in networking performance.”

After a series of setbacks that hindered Intel’s position in the burgeoning AI chip market, Chief Executive Lip-Bu Tan has initiated a turnaround strategy. This approach focuses on reducing costs, restructuring management layers, and promoting a new product roadmap. Last year, Intel attracted significant investments, including $5 billion from Nvidia and $2 billion from SoftBank, alongside a stake from the US government, boosting investor confidence in its revival.

Operational Adjustments and Future Outlook

Intel is shifting its strategy by scaling back on contract manufacturing ambitions that were heavily promoted by former CEO Pat Gelsinger. This decision aims to strengthen Intel’s balance sheet after past capital-intensive expansions negatively impacted profit margins. Following a drop of over 60% in its share price in 2024, Intel has seen a remarkable recovery with an 84% increase in 2025, significantly outperforming the benchmark semiconductor index’s 42% rise.

The company currently employs around 4,900 people in Ireland, with a major manufacturing facility located in Leixlip, Co Kildare, where investments have reached €30 billion. Intel has recently begun shipping its new “Panther Lake” PC chips, which utilize its pivotal 18A manufacturing technology. Analysts anticipate that the ramp-up in production may adversely affect margins, especially since reports indicate that only a small percentage of the chips produced through this new technology have met quality standards.

Intel has acknowledged that improving yields, or the number of acceptable chips produced from each silicon wafer, is crucial, and it reports that these yields are enhancing monthly. Nonetheless, low yields typically exert pressure on profit margins. A global shortage of memory chips has led to increased prices, further impacting the personal computer market, which is vital for Intel’s revenue.

Zinsner remarked, “We navigated industry-wide supply shortages. We expect our available supply to be at its lowest level in Q1 before improving in Q2 and beyond.” The company has also been experiencing a steady loss of market share in the personal computer segment to competitors such as AMD and Arm Holdings.

As Intel navigates these challenges, the market will be closely watching its ability to adapt to the rapidly evolving demands of AI and data centre technology.