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What’s behind Intel’s $20 billion plan

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Yahoo Finance’s Julie Hyman and Brian Sozzi discuss Intel’s turnaround efforts and moves in tech stocks.

Video Transcript

JULIE HYMAN: Let's start with that Intel story, though, because it is a fascinating one. Brian Sozzi, you've been covering this closely. And you knew that Intel was making an announcement. We didn't know what exactly they would be saying. Intel has had a lot of push and pull, right, in terms of external and internal forces that have been pushing it in different directions, in terms of its strategy.

CEO Pat Gelsinger, who had been at the company, returned to the company and actually doubled down on what some critics of Intel have been pushing it away from. That is the foundry business, making chips for other companies, at the same time that Intel has also got to fix its own chip making business for itself. So it's got a lot to get right here in terms of execution.

BRIAN SOZZI: All right, Julie, it was fascinating to watch this event that started at 5:00 PM yesterday. And if you're an Investor Day geek like me, this was more exciting, I would say, than the reveal of a new iPhone. You had Pat Gelsinger, just in the month, the top CEO job here at Intel in that role for about one month, he came on there last night. And he was on fire, sounding like an executive that has been at the company, really, for the past 40 years.

Obviously, he left in 2009 to be the CEO of VMware, just returning a couple of months ago as CEO of Intel. But the big headline here, Intel investing $20 billion to build two fab or chip making plants in Arizona.

And Gelsinger pulled no punches on this call, Julie, last night, saying they, Intel, remains committed to making its own chips, I would say pushing back to a lot of Wall Street critics and also Third Point's Dan Loeb, who is agitating for the company to explore alternatives, which included potentially getting out of making its own chips, outsourcing that business, saving money, and lightly plowing back into dividends and boosting the stock price.

Gelsinger said, no, that is not going to happen. But Julie, as I was watching this, I was surprised that there were two cameos here. Not a lot of people expected it, but Microsoft CEO Satya Nadella hopped on the call last night, as well as IBM's new CEO Arvind Krishna, both voicing support for Gelsinger's initiatives. Here's what they said.

SATYA NADELLA: As chips become more specialized and cloud architectures become more optimized for new workloads, we will need to collaborate to co-design the next generation of systems, from the hardware, to the systems, to the software.

ARVIND KRISHNA: The technology is driving the next technological revolution, Hybrid Cloud, AI, 5G, the Intelligent Edge, Quantum are all together going to help unleash the potential of data and advance computation that will create immense economic value.

BRIAN SOZZI: And Julie, I'm looking forward to catching up with Gelsinger later this afternoon. We'll have more from that interview later on here on Yahoo Finance. But not lost in the optics, at least to me, Microsoft CEO, IBM CEO, obviously no Apple CEO Tim Cook. That relationship was essentially ended late in 2020, as Apple is now making its own chips called the M1.

Now, Gelsinger did mention on the call, though, he is open to pursuing opportunities with Apple, whatever that means. But I'm really looking forward to catching up with Gelsinger later.

JULIE HYMAN: Yeah, one would think he's open to opportunities, because presumably, it wasn't Intel's decision, necessarily, to end that relationship. So we'll see what happens. But meantime, the ripple effect that we've seen across the industry has been really interesting, because what Intel is doing with this move, it's going to more squarely compete with the likes of Taiwan Semiconductor and Samsung. We've seen pressure on those stocks.

And if they're building out new facilities, they're going to need equipment. And so we've seen a lot of the equipment makers get a boost from this announcement as well, to your point, sort of illustrating the size and importance of what Intel and ambition of what Intel is planning here, the effect on the rest of the industry.

BRIAN SOZZI: Right, and worth noting here, it's not all sunshine and roses with Intel with his Investor Day yesterday, on mini Investor Day, I would say. They came out, they said they would beat first quarter guidance because of continued strong notebook demand. So likely, you're probably also going to see good quarters out of HP, out of Dell. Those trends continue as we all continue to work on.

But they lowered their full year guidance about $0.20 below where the consensus was as they invest these billions of dollars to build up these manufacturing plants. And there's still a heavy skepticism on Wall Street, at least out this morning in terms of notes that I was able to read, on whether Gelsinger can pull off this turnaround.

He's going to spend a lot of money trying to do it. I think Wall Street is open to giving Intel another shot. They've tried type of turnaround before. It really just boils down to execution.

JULIE HYMAN: Yeah, well, so TBD then on that front. Just to broaden it out to bigger tech for just a moment, Brian, because this is obviously something you and I and Myles have been talking about a lot is about the rotation out of tech and into the so-called reflation or reopening trade, whatever you want to call it.

We're sort of at this point now where we're trying to figure out if we're at an inflection point where that's going to reverse, or if we're just going to continue to see some back and forth here. I mean, yesterday, we saw some declines for the NASDAQ. But in recent days, it seems to have gained a little bit more traction.

And of course, at the same time, yields have stalled out in their upward march. So that certainly doesn't hurt matters. But I know you read a lot of notes out there. Is there any kind of glimmer of things changing?

BRIAN SOZZI: No. It has been interesting. The move tech that you mentioned, Julie, has really been, I think, focused on this pullback in yields. Yields have crept down. As you can see, Fed officials, like a Jerome Powell, talked down the effect or the impact. We're going to see rapid inflation because of new stimulus plans as they have done. So I think that's why you're seeing tech reawakened.

But at the end of the day, I think for a more strong, or just a stronger trend here in tech stock, you're going to need to see first quarter earnings, because that is when the comparisons for a lot of these big cap tech companies are at their strongest for the year. And it's when you could see the strongest growth decelerations for a lot of big cap tech names. If they could come out of here, beat handily on sales, beat handily on earnings, it would go a long way to, I think, reawakening the big cap tech.

JULIE HYMAN: Yeah, and then a little while here, we're going to talk to Sean Darby of Jefferies, who predicts not only a consumer spending increase, but also a corporate spending increase, Intel obviously an example of that. I'm curious. We'll get his take on what that means maybe for other tech companies as well.