Intel forecast second-quarter revenue and profit below market estimates on Thursday, sending its shares tumbling 8% as it faces weak demand for its traditional data center and PC chips and trails in the surging market for AI components.

Enterprises have prioritized spending on advanced and speedy artificial intelligence server chips, hurting demand for Intel's central processing units (CPUs), which have been the mainstay chip powering data centers for decades.

Intel's Gaudi AI chips are likely to achieve more than $500 million in revenue this year, CEO Pat Gelsinger said in an interview. Intel launched its third generation Gaudi 3 processor in April as it trails far behind Nvidia in AI chips.

"What's most exciting to me is enterprise customers," Gelsinger said. "I think ultimately the monetization of AI is when it starts transforming enterprises."Shares of the Santa Clara, California-based company fell to $32.35 in extended trading, their lowest since August.

"It's a first-half, second-half story for the industry," Gelsinger said. "We see essentially every business of Intel (fares) better in the second half of the year."

Nvidia's powerful graphics processing units dominate the AI market, as large and small companies have sought to acquire tens of billions of dollars worth of them. Surging demand and Nvidia's limited supply of these advanced chips has left Intel with the opportunity to take market share.

Intel is optimistic about personal computer sales in the second half of the year because it anticipates a fresh PC upgrade cycle around a new version of Microsoft's Windows operating system. The company also expects software vendors launching next generation products to help lift demand for PCs and Intel's chips, Gelsinger said.

Intel expects second-quarter revenue of $12.5 billion to $13.5 billion, compared with analysts' average estimate of $13.57 billion, LSEG data showed.

Intel forecast second-quarter adjusted earnings of 10 cents per share, also below expectations.

Total revenue of $12.72 billion in the first quarter marginally missed expectations of $12.78 billion. Sales at its data center business rose 5% to $3 billion during the period.

Intel's contract manufacturing business, or foundry, is working to catch up with industry leader TSMC, but profits remain years away. Revenue from the foundry business fell 10% in the first quarter.

Adjusted gross margin rose to 45.1% from 38.4% in the 2023 first quarter, beating analysts' consensus estimate of 44.3%.

  - Reuters