Intel scores Amazon AI chip deal, reigniting hopes for a turnaround

Intel’s foundry business has secured a significant deal with Amazon Web Services (AWS) for custom AI chip production, potentially bolstering confidence in the struggling chip giant.

In a memo to employees, CEO Pat Gelsinger revealed that Intel Foundry Services will manufacture an AI fabric chip for AWS using its 18A process technology.

“We will also produce a custom Xeon 6 chip on Intel 3 that builds on our existing partnership, under which Intel produces Xeon Scalable processors for AWS,” Gelsinger said. “More broadly, we expect to have deep engagement with AWS on additional designs spanning Intel 18A, Intel 18AP, and Intel 14A.”

The announcement comes after Intel secured up to $3 billion in direct funding under the US CHIPS and Science Act for the US government’s Secure Enclave program.

Gelsinger also announced plans to establish Intel’s foundry business as an independent subsidiary, completing the transition that began earlier this year when it separated Intel Foundry Services’ financials from its core operations.

All eyes on Intel

Intel’s recent moves have come under scrutiny as the chipmaker faces mounting pressure after weak quarterly earnings, aiming to stay relevant in the enterprise sector amid strong competition.

In the memo, Gelsinger acknowledged these challenges, saying that “all eyes have been on Intel since we announced Q2 earnings.”

 “There has been no shortage of rumors and speculation about the company, including last week’s Board of Directors meeting, so I’m writing today to provide some updates and outline what comes next,” Gelsinger added.

The custom chip deal with Amazon couldn’t have come at a better time, according to Hyoun Park, CEO and chief analyst at Amalgam Insights.

“It is no secret that the existing chip manufacturers are essentially maxed out on their production capacity for the next couple of years when it comes to AI,” Park said. “Any ability that Intel has to further support AI workloads would be welcomed by the market at large. This is especially important because AI is often developed in the cloud due to the unpredictability of the workload, and AWS is potentially a blank check in terms of acquiring AI chips.”

Neil Shah, partner & co-founder at Counterpoint Research, noted that the deal marks a significant milestone for Intel, potentially allowing it to package Amazon’s next-generation Trainium chip — possibly Trainium 3 — which could exceed 1000 watts, putting it on par with Nvidia’s Blackwell architecture.

“However, it remains to be seen how significant this deal is in terms of volume and the mix of front-end (wafer fab) and back-end (packaging) processes,” Shah added. “Additionally, the yield rate of the chips, compared to TSMC, will be a major concern in determining the profitability of the deal for both parties.”

Streamlining for performance

Gelsinger added that Intel Foundry is focused on enhancing capital efficiency while making adjustments to the near-term scope and pace of its manufacturing expansion.

The company has passed the halfway mark toward its goal of reducing its workforce by approximately 15,000 employees by the end of the year. It also plans to sell a stake in its programmable chip unit, Altera, and will delay projects in Poland and Germany for about two years, citing expected market demand.

Meanwhile, Intel reaffirmed its commitment to US manufacturing, moving ahead with projects in Arizona, Oregon, New Mexico, and Ohio.

Analysts warn that the company’s emphasis on US manufacturing while boosting its chances of securing government contracts and benefiting from reshoring initiatives, could strain relations with European partners and clients.

“Europe has been investing heavily in semiconductor autonomy through its own Chips Act, and Intel’s pause could shift momentum to Asian or European chipmakers eager to fill the gap,” said Manish Rawat, semiconductor analyst at Techinsights. “Intel’s move highlights the delicate balance between national security concerns and the need for a diverse global supply chain, especially when geopolitical instability or trade disruptions with Asia are considered.”