The Future of AI: An Expansion in Intel and AWS' Multi-Billion Dollar Collaboration

Amazon's new custom Intel Chips?

Executive Summary

Intel and Amazon Web Services (AWS) have announced a major expansion of their strategic collaboration, involving Intel's production of custom AI chips for AWS. This multi-year, multi-billion-dollar agreement includes the development of an AI Fabric Chip using Intel's 18A process node and a Custom Xeon 6 Chip on Intel 3. The partnership aims to boost AWS's AI and cloud computing capabilities while accelerating U.S.-based semiconductor manufacturing. Intel's shares rose 8% following the announcement, reflecting positive market sentiment. Both companies are making significant investments in Ohio, with AWS committing $7.8 billion for data center expansion. The collaboration is expected to have far-reaching implications for the semiconductor and cloud computing sectors.

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Intel and Amazon Web Services (AWS) Custom Chip Collaboration

On September 16, 2024, Intel Corporation and Amazon Web Services (AWS) announced a significant expansion of their strategic collaboration, which includes Intel producing custom artificial intelligence (AI) chips for AWS. This partnership marks a milestone in the semiconductor and cloud computing sectors.?

Custom Chip Production

Intel will produce two types of custom chips for AWS:

• AI Fabric Chip: Utilizing Intel's most advanced process node, Intel 18A, this chip is designed to enhance AI application performance.
• Custom Xeon 6 Chip: Building upon the existing partnership where Intel produces Xeon Scalable processors for AWS, this chip will be produced on Intel 3.

These advanced chips are expected to significantly boost AWS's capabilities in AI and cloud computing, reinforcing its market leadership.

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Partnership and Investment

The collaboration is part of a multi-year, multi-billion-dollar framework that includes both product and wafer production from Intel. This agreement underscores the long-standing relationship between Intel and AWS, which dates back to 2006. The deal also aims to accelerate U.S.-based semiconductor manufacturing, particularly in Ohio. Intel is committed to its plans in the New Albany area, while AWS is investing $7.8 billion to expand its data center operations in Central Ohio, adding to its $10.3 billion investment in the state since 2015.

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Financial and Market Impact

The announcement has had a notable impact on both companies' financial metrics and market perception:

• Intel's Shares: Following the announcement, Intel's shares rose roughly 8% in extended trading, reflecting investor confidence in the deal (Reuters, September 16, 2024).
• Cost Cuts and Restructuring: Intel outlined planned cost cuts and restructuring efforts, including pausing construction at its chip factory projects in Germany and Poland, and selling a stake in its programmable chip business Altera. The company plans to establish its foundry business as an independent subsidiary.

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Performance Metrics for AMZN and INTC

While the recent announcement provides a forward-looking perspective, historical performance metrics offer additional context:

• Intel (INTC) Performance: Recent Stock Performance: Intel's shares jumped 8% in extended trading on September 16, 2024, following the announcement (SemiWiki, September 16, 2024). Second Quarter Earnings: Intel reported disappointing second-quarter earnings last month, leading to the announcement of cost-cutting measures. Future Outlook: The company is focusing on enhancing its profitability and market competitiveness, with significant investments in semiconductor manufacturing and research and development. Six-Month Performance: Over the past six months, Intel's stock has declined by 50.45%, underperforming the S&P500's gain of 10.62%. Volatility: The expected volatility for Intel stands at 42.05%, indicating a higher risk profile compared to some peers. Market Capitalization: Intel's market capitalization is $89.411 billion, with a price-to-earnings (P/E) ratio of 80.42.
• Amazon (AMZN) Performance: AWS Investment: AWS has committed to investing $7.8 billion to expand its data center operations in Central Ohio, in addition to its previous $10.3 billion investment in the state since 2015. Long-Term Collaboration: The partnership with Intel reflects AWS's long-term commitment to delivering powerful and innovative cloud infrastructure. Twelve-Month Performance: Amazon's stock has returned 31.70% over the past year, outperforming the S&P500's return of 27.88%. Risk Metrics: The Sharpe ratio for Amazon over the past year is 0.92, compared to the S&P500's Sharpe ratio of 1.78. Additionally, Amazon's annualized standard deviation is 28.67%, higher than the benchmark's 12.73%, indicating greater volatility.

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Additional Context

The partnership between Intel and AWS highlights several strategic initiatives:

• Intel Foundry Business: Intel's foundry business is crucial to its turnaround plan. The company plans to give this business greater independence, including the ability to take outside capital and operate as an independent subsidiary (Yahoo Finance, September 16, 2024).
• Government Funding: Intel was awarded up to $3 billion in direct funding from the U.S. CHIPS and Science Act for the Secure Enclave program, aimed at enhancing trusted manufacturing of cutting-edge semiconductors for the U.S. government (Business Standard, September 16, 2024).

This partnership highlights the commitment of both Intel and AWS to advancing U.S.-based semiconductor manufacturing and fostering a dynamic AI ecosystem, particularly in Ohio. The collaboration is poised to drive innovation and growth in AI and cloud computing, benefiting both companies and their stakeholders.

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Conclusion

The Intel-AWS collaboration represents a significant development in the semiconductor and cloud computing industries. This partnership involves custom AI chip production, substantial investments in U.S. manufacturing, and strategic restructuring efforts. The deal has positively impacted Intel's stock performance and reinforces both companies' commitment to innovation in AI and cloud technologies. This collaboration is expected to have long-term implications for the tech sector and U.S. semiconductor manufacturing capabilities.

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This document was created by Daizy using institutional-grade data and in collaboration with several external Large Language Models. All calculations were performed by the Daizy LLM Analytics Service. The contents of this document do not constitute investment, tax, or legal advice, and Daizy (Vesti.ai Ltd) is not authorized to give any advice. [Please refer to our terms of use.]