Intel Corp

Intel represents a critical entity in domestic semiconductor fabrication, making the reshoring of semiconductor manufacturing an essential priority for the United States. The primary alternative provider in this sector is TSMC, which commands the vast majority of advanced nodes globally. It is improbable that TSMC will relocate most of its critical manufacturing infrastructure to the United States, as this capacity serves as a strategic deterrent against potential intervention by China. Although an investment in Intel may appear inconsistent with prior observations regarding an impending data center bubble, a strategic rationale supports the decision. The success of Intel appears to be a necessary outcome.

This quarter Intel was our largest contributor by a wide margin, adding 4.94% to Fund performance. The improvement has been fundamental as well as sentimental. Intel reported second quarter revenue of $16.1 billion, up 25% year over year and its fastest growth in more than fifteen years, with gross margin expanding to 40.4% from 27.5%. Demand for server processors has been stronger than expected, and the company has moved its 18A manufacturing process into high volume production at its new facility in Arizona. Domestic semiconductor manufacturing has become a matter of national policy, and Intel remains strategically important to the buildout of computing capacity now underway.

Intel has been a significant contributor to the Sound Shore Fund's performance, accounting for 4.3 percentage points of the Russell Value’s 13.8% second quarter return. The resurgence in the artificial intelligence trade has driven massive data center infrastructure spending, benefiting semiconductor companies like Intel. The manager believes that the ongoing AI revolution will create sustained demand for advanced memory chips, which Intel is well-positioned to supply. This aligns with the fund's strategy of investing in companies with enduring business models and better earnings power that is not reflected in today’s stock price.

Intel is experiencing a revival in its foundry business, gaining traction with external customers, including agreements with Apple and Tesla for chip manufacturing. The rise of agentic AI is expected to drive rapid growth in the mature CPU market, with Intel poised to capture incremental revenue despite potential share loss. The company is also improving yields on its 18A technology, which is critical for future production. As Intel ramps up its capacity, it will need to invest in new fabs to support both its CPU business and foundry operations, positioning it well for the upcoming capex supercycle in semiconductors.

Intel Corporation is experiencing robust demand in data center and AI markets, leading to a notable improvement in profitability. The manager highlights that Intel's cloud ASIC business is highly profitable, with margin gains and operating leverage set to enhance overall earnings power. The upcoming product roadmap and foundry strategy are gaining traction, indicating further upside in earnings and valuation. The manager believes that Intel is progressing beyond a cyclical recovery toward a structurally stronger, AI-driven growth story, supported by its ecosystem and the increasing exposure to AI workloads.

Intel, along with Micron and SanDisk, has shown remarkable performance, each more than tripling during the quarter. This surge is attributed to the excitement surrounding AI and its potential impact on data center investments. The manager believes that while there is a speculative nature to the current market, Intel's position in the semiconductor space, particularly in relation to AI, presents a strong investment opportunity. The manager emphasizes the importance of selecting high-quality businesses with attractive valuations, suggesting that Intel fits this profile well.

Intel, along with AMD and Micron, has shown exceptional quarterly performance, broadly tripling or more over 3 months. These companies accounted for just over 2% of the Index by market capitalisation yet contributed 17% of quarterly returns. The manager notes that not having an investment in these companies detracted from the Fund’s relative performance, indicating a strong belief in their future potential. The momentum in AI-related capital expenditures is driving significant interest and returns in the semiconductor sector, positioning Intel favorably in this landscape.

Intel Corporation has been highlighted as one of the top performers in the Russell 1000 Value Index, with a year-to-date return of 278% and a trailing P/E ratio of 95x. However, the commentary reflects a broader market context where the Oakmark Fund has chosen not to invest in AI hardware stocks, including Intel, due to uncertainty about future cash flows and the sustainability of current profit margins. The manager notes that while Intel is viewed as a beneficiary of AI spending, they have not found sufficient margin of safety in its valuation to justify ownership.

Intel Corp. has benefited from spiking demand for CPU processing power driven by the move to develop agentic AI systems that deploy large language model (LLM) agents to independently reason out and execute complex tasks. The stock participated in the quarter’s surge in sentiment concerning semiconductor companies. Additionally, Intel launched its own foundry dedicated to AI manufacturing, with strong indications of interest from several of the largest technology companies in securing production capacity, despite the foundry posting steep losses to date.

The primary engine behind the S&P's gains in H1 was the semiconductor complex. More than a third of the index's H1 gains came from a handful of top performers, including Intel. A global supply bottleneck in memory chips — essential inputs for AI data centers — drove the move: as these companies sold out their production capacity, pricing power surged and earnings estimates were revised sharply higher. This positions Intel favorably within the growing AI sector, highlighting its potential for continued earnings growth.