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We're watching shares of Intel shares spiking after a tough month, reports saying the struggling chip giant is exploring options, including a split of the company and scrapping factory projects. Joining us now is John Vinh, KeyBanc Capital Markets equity research analyst. John, it is good to see you. So, uh, let's start with these reports, uh, uh, John, that Intel could be considering, uh, splitting its product design and manufacturing businesses. I'm curious what you made of those reports, John. What would be the the potential benefits of that, John, for the company? Just financially and strategically.

Yeah, I think, you know, I think the benefit would be I I think the concerns a lot of investors have on Intel is that if you look at the two parts of its business, right? It's kind of chip core chip business, the IDM business, and then you look at the foundry business. I I think each and other of those each of those projects in and of itself, it's just a big, big task to handle. And I think people are really concerned about whether or not Intel can really succeed as a service foundry. So I think divesting the IFS business off as the reports indicate would be a step in the right direction. And I think, uh, it would be something that I think a lot of investors would look at favorably.

So fair to say, it sounds like you think it should happen, but what percentage chance would you put on the likelihood of it actually happening?

You know, it's unclear, right? You know, obviously there's, you know, right now it's all speculation, right? I mean, I think it's something that outside investors want them to do. Um, internally, if you're Intel, I think part of Intel feels that a lot of its prior success has been because it's been vertically integrated, both on the foundry side as well as on just the core chip business. And I know Pat feels very strongly about the importance of kind of the foundry business as it relates to kind of national security. So I think they're so they're obviously struggling with it. So, you know, hard to say what what the probability is. I think I think investors want to see it happen, um, but I think internally, if you're Intel, you're probably struggling with that decision.

You know, John, you mentioned Pat Gelsinger there. Um, took the reins of this company a few years back, officially February 2021. I'm curious, John, you know the company, you know the C suite, how would you grade Gelsinger's performance so far?

I think Pat's done a good job managing Intel, right? I mean, there's probably very few executives in this world that are capable of running a company as large and complicated as Intel. And, you know, Pat certainly is on the short list. But I think if you want to be fair, um, you know, the results have been disappointing, you know, for a multitude of reasons. I don't know how much of that you can attribute to Pat. Um, but the results that, you know, have uh, that people had hoped for when he took over the reins just have not realized themselves.

So so given that it's been disappointing, John, I'm curious how much time you think he has left to really make this turnaround plan, this turnaround strategy of his work.

Yeah, I certainly think that, you know, time's running out, right? And I think at this point in time, I think more and more investors are concerned about whether Pat's the right guy. Obviously, you know, they've got to make some some decisions here. Obviously, divesting IFS seems to be one of the considerations out there. Um, but I think people are going to wait and see what's what's their next move. And then based on that, we'll have to evaluate.

Well, John, I want to broaden the conversation out slightly because I find it interesting that in terms of questions that I was asking, but also the responses we were getting from guests this week after the reaction from the street to Nvidia earnings, nobody was bringing up Intel. It's literally just not a word that even came up in any of our conversations across our programming here. And that's because they don't really have a seat at the head of the table when it comes to the chips race right now. That feels like an issue. Is it something that they can change? Is that something that you see the company being able to pivot on moving forward here?

I think it's going to be really challenging, right? Um, I'm not saying that they don't have a chance, but if you look at their core business, um, you know, what's what are the issues there, right? They don't have a competitive AI chip that can compete with, um, like Nvidias of the world. They don't have a chip that can compete with the hyperscalers, Google's TPU right now, right? You know, obviously they're rolling out Gaudi 3. They're working on kind of a next generation chip, but from what we're hearing, uh, that chip is largely non-competitive. And then you look at their core compute businesses where they're under fire because they're losing share to not only AMD on the server front, but they're also losing share to ARM, you know, on the server side. Uh, more and more hyperscalers are developing ARM-based CPU chips. Google's working on one called Axiom. AWS has seen very good success with its ARM-based Graviton CPU. Uh, and that trend is only going to continue going forward. And then on the PC front, uh, more recently you've seen Qualcomm launch an ARM-based CPU, um, and they're also starting to see good traction with that chip in the PC market. So they're under attack under multiple fronts. Um, I think in the near term, probably the thing that they really have to address most urgently is just having a more competitive AI offering because that's obviously seeing very strong demand in the marketplace right now.

John, I heard you mentioned the hyperscalers there. I'm curious to get your take on one issue. Um, you know, hyperscalers obviously have been, you know, spending spending on AI. That's been great news for Nvidia. We saw those reports, uh, this week, you know, Nvidia's reported guide was solid. Maybe obviously there was investors expecting more. Um, I'm curious, John, though, you know, to the extent that you think investors in those hyperscalers, do they start putting some pressure on those companies saying, listen, you got to show me ROI on all this AI investment or you got to cool it down? And what that would mean for some of the names you cover like Nvidia.

Yeah, I think that's absolutely a concern when you think about kind of the AI semiconductor plays, right? That we know that this spending cannot continue unabated without some ROI there. You know, it's unclear when that's going to happen. We don't think that that happens before 2026 at this point. And the reason is, if you look at the Blackwell, um, chip that Nvidia is offering, um, the the improvement in performance that they are providing, especially with whole rack server solution, GB200 NVL, you're getting a 30X improvement in performance there. And that's a massive step up in performance. And if you're a customer there and you're under a lot of pressure such as a Microsoft, AWS, Google, to show ROI, um, you can't not move to Blackwell because the ROI of the performance improvement that chip is so massive. And until we figure out what the monetization model is for generative AI, they're going to all have to move to Blackwell pretty aggressively in 2025.