Jan 23 (Reuters) - Intel's shares plunged 14% on Friday after the company struggled to meet strong artificial intelligence-driven demand for data-center chips due to supply constraints, disappointing investors betting on its turnaround.
After years of sitting out the AI boom that turned Nvidia into the world's most valuable company, Intel is finally enjoying a demand surge for its traditional server chips that are used alongside advanced graphics processors in data centers.
That and high-profile investments from the U.S. government, SoftBank and Nvidia have reignited investor interest. Intel's stock outpaced most semiconductor firms last year with an 84% gain and has extended its rally into 2026, up 47% in January so far.
"The rally had been largely driven by 'the dream' rather than the near-term reality or fundamentals," TD Cowen analysts said.
Intel cannot keep up with demand even as it runs factories at capacity, but Intel CFO David Zinsner said he expects available supply to improve in the second quarter after hitting its lowest levels in the first quarter.
Jefferies analysts also noted that Intel's supply shortage will likely bottom out in March, while brokerage Oppenheimer said the constraints will ebb by the second quarter.
Friday's losses followed quarterly profit and revenue forecasts that were below estimates. The drop will erase more than $35 billion from Intel's market value, if losses hold.
"The server cycle seems real, but the company appears to have woefully misjudged it with its capacity footprint caught massively off guard," said analysts at Bernstein.
The company faces a lag in changing the type of semiconductors it makes, hampering efforts to increase production of in-demand data center processors.
Also weighing on Intel's forecast was the global memory supply shortage where price hikes are expected to dampen end-market demand in the personal computer market - Intel's biggest segment, where its new "Panther Lake" PC chips were expected to spark a comeback after years of market-share losses to AMD .
Investors are closely examining Intel's turnaround under CEO Lip-Bu Tan, who has focused on cutting costs and scaling back expansive contract manufacturing ambitions.
The prospect of new external customer announcements had greatly contributed to Intel's rally ahead of results, but Tan's comments on a post-earnings call indicated that two customers had only gone so far as to evaluate the technical details of its upcoming 14A manufacturing technology.
(Reporting by Kanchana Chakravarty in Bengaluru;Additional reporting by Samuel Indyk in London and Arsheeya Bajwa in Bengaluru; editing by Alun John and Maju Samuel)
