This week, the Wall Street Journal reported that Intel will delay the opening of their Ohio factories due to "market challenges and the slow rollout of U.S. government grant money." Instead of opening in 2025, they might open in 2026. Intel's reason for the delay is interesting because by the time the factories were to open, demand for chips was supposed to be high.
In order to gauge the direction of the chip market, I decided to review the recently released conference calls of Alphabet (Google), Amazon, Meta, and Microsoft. Since these are major tech companies that need the best chips to build their AI platforms, I wanted to hear about their AI spending plans for 2024.
AI Spending by Major Corporations
Below is the amount each company spent on their Property, Plant and Equipment (CapEx) in 2023, and their' comments about their 2024 capital spending plans.
For fiscal year 2023,
Alphabet spent $32.3B and said, "We do expect 2024 full year CapEx to be notably larger than 2023.
Amazon spent $57.4B and said, "CapEx will go up in 2024... we do expect CapEx to rise as we add capacity in AWS for region expansions, but primarily the work we're doing with generative AI"
Microsoft spent $28.1B and said, "We expect capital expenditures to increase materially on a sequential basis (next quarter), driven by investments in our cloud and AI infrastructure...
Meta spent $27.3B and said, "We anticipate our full year 2024 capital expenditures will be in the range of $30 billion to $37 billion... We expect growth will be driven by investments in servers, including both AI and non-AI hardware, and data centers as we ramp up construction on sites with our previously announced data center architecture.
Each company plans to spend more on their AI infrastructure in 2024 than in 2023.
Situation to Monitor: The chip industry is extremely cyclical. If tech companies ramp up their spending in 2024 and cannot properly monetize their AI investments, they might temper their spending in 2025. The year Intel was supposed to open the factories.
Is this what Intel is looking at? A potential slowdown in 2025?
Inference Higher than Training
On the conference calls, AMD and Microsoft mentioned they are seeing a large number of companies use AI for inferencing and not training.
Training involves feeding an AI model massive amounts of data so the model can recognize patterns within the data. Once the model is trained, users can request information from the model, which is called inferencing.
On Microsoft's earnings call, CEO Satya Nadella said mostly all of the Artificial Intelligence (AI) work being done by his cloud customers is inferencing and not training.
AMD's CEO, Lisa Su, also said on her call, "A growing number of customers are adopting EPYC CPU's for inferencing workloads..."
NVIDIA dominates the training market. According to analysts, Patrick Moorhead and Daniel Newman, NVIDIA has ~98% of the market in the Western world. AMD and Intel are better suited for the inference market.
Since inference workloads are higher than training, I wonder if this means more companies will make their own custom chips to parse their data, and they won't need as many chips from Intel or AMD. But this is where Intel's foundry business is supposed to step in. By manufacturing chips for other companies, Intel is supposed to benefit whether companies use an Intel chip or their own.
Companies have also expressed a desire to partner with other manufacturers so they can reduce their reliance on TSMC, who currently manufactures ~92% of leading - edge chips. Intel will be a welcomed addition to the industry.
Jensen Huang also mentioned this week that governments need AI chips to help them better utilize their national data. The demand from governments for military and non-military AI chips should increase the demand for Intel's chips and foundry.
Situation to Monitor: Intel's foundry business and technology will be a welcomed addition to the industry. I wonder if their delay in Ohio is an early warning sign that they are having a difficult time completing 5 nodes in 4 years by 2025, and without the technology being ready, it won't make sense for them to open the factory in 2025.
Using the Delay as Leverage Against the US Government
In their statement to the WSJ, Intel cited the slow rollout of money from the government as a reason for the delay. In January 18 2024, TSMC also announced they were going to delay their Arizona project because they needed to see how much money the government was going to give them.
TSMC and Samsung are major competitors to Intel's foundry business, and Intel's CEO, Pat Gelsinger, believes his company should get more money from the CHIPS Act than TSMC and Samsung because Intel does their Research & Development in the US while TSMC and Samsung do theirs overseas.
It would seem advantageous for Intel to plow forward with their original timeline so they can open and attract US customers to their factories before TSMC.
I wonder if Intel is delaying their project because TSMC is delaying their project, and they don't want to reduce any leverage they might have against the US government. If Intel moved forward without knowing how much money they would receive, they might end up getting less than TSMC because the government would feel pressured to give TSMC more money to jumpstart their project.
Situation to Monitor: If Intel gets a generous amount from the government, they might return to their original timeline. TSMC might also do the same if they get a good amount from the government. We should see how the companies behave once the CHIPS Act money is distributed.
Conclusion
Intel says they are delaying the factory because of "market conditions" and "government funding" but they did not go into detail about the market conditions that are preventing them from keeping their original timeline. I am leaning towards them using the delay to get more money from the government, and once the money is distributed, they will adjust their timeline again. Let's see how they behave once the funds hit their account.
We should also pay attention to how well the tech companies are monetizing their AI investments in 2024 because that might impact the amount they spend on AI chips in 2025.
Thanks for going through this thought exercise with me about the reasons why Intel is delaying their Ohio factories. If you believe I am missing an important angle, please leave a comment to highlight the reasons you think Intel is delaying their project.
Stay strong, stay blessed, and God willing, I will see you next week.
For there is nothing covered that will not be revealed, nor hidden that will not be known. Therefore whatever you have spoken in the dark will be heard in the light, and what you have spoken in the ear in inner rooms will be proclaimed on the housetops.
Luke 12:2-3 NKJV
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