After posting two straight quarters of losses, Intel (INTC) returned to profitability in the second quarter. In an interview with Yahoo Finance Live, Intel CEO Pat Gelsinger says he thinks "the worst is behind us at this point and our raise to the guide for Q3 really portends to a more optimistic future."

One of the big issues for Intel has been the slowdown in PC demand. On that Gelsinger says the company is "expecting nice quarter-on-quarter improvements" in that business, partly due to inventory adjustments.

When it comes to AI, Gelsinger explains there are a couple of reasons why Intel's name isn't mentioned much in the conversation. One of the reasons Gelsinger gives is that "we haven't been as aggressive out of the chute as we should've been." Gelsinger says the company has to prove itself because "we have a clear market leader who is executing very well." Gelsinger says rival Nvidia (NVDA) "has done a good job in this space. They've really led the way and I like to say, they worked super hard and they got lucky." However, Gelsinger notes the AI space is still "fairly young" and there is still "a lot of opportunity" for Intel.

Video Transcript

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BRIAN SOZZI: Intel bounced back in the second quarter with a return to profitability, following two back-to-back quarters of losses. Revenue fell 15% year-over-year. But the chip maker did give more upbeat guidance than expected for the current quarter.

Intel CEO Pat Gelsinger joins me now. Pat, always great to get some time with you. In terms of the Intel turnaround, is it fair to say that the worst days that, I think, investors saw from the prior few quarters, is it over? Can you confidently say that?

PAT GELSINGER: Hey, thanks, Brian. Always a pleasure to be on Yahoo Finance and to chat with you. And yeah, we had a very solid Q2 and beating on the top line, beating on the bottom line, you know, exceeding in both our PC business as well as a bit better than we expected in the data center business. So I just say we finished the quarter feeling really good, good response from investors, as we rolled out the news.

And I do think we've, you know, we've seen the worst. And obviously, the PC inventory levels are now healthy again. And we're seeing the demand signals. You know, we think we still have a little bit of inventory on the networking and the data center to fight through in the third quarter of the year. But I really think the worst is behind us at this point. And our, you know, raise to the guide for Q3 really portends to a more optimistic future. So super proud of my team and making a really good quarter happen for us.

BRIAN SOZZI: Pat, you told me three months ago that green shoots were starting to form. And it looks that way from the guidance. So is it OK to say that those shoots are now morphing into plants?

PAT GELSINGER: Yeah. They're getting a little bigger and a few more shoots as well. But I'll say, you know, if we think about that, you know, getting the client, the PC business healthy, right, good inventory levels, you know, we're back to historic market share levels. So I'd say that clearly has gone from a green shoot to a plant at this point.

You know, data center, hey, we did a little bit better than we thought we would in Q2. The product roadmap Sapphire Rapids, Gen 4, Gen 5 with Emerald Rapids, looking to appear in Q3 a bit ahead of schedule and the roadmap for next year So I'll say we're still sort of at the green shoots level there. We had a big uptick in our AI pipeline, particularly led by our Gaudi product line, you know, 6x in the quarter, a billion dollar plus pipeline. So I'll say that's still in the green shoot phase.

So, you know, overall, you know, good green shoots and good execution on our process Technology the all important, do I have the best transistors in the world? And starting to see some good momentum in the Foundry business. So I'll say, we have at least one good solid plant and plenty of green shoots other areas in the business.

BRIAN SOZZI: Fair enough. I can deal with that. So I want to talk about AI in a second. I have to make sure people watch this whole interview, Pat, so I'm going to save it to the end. Let me go back to the state of the PC market. What does the recovery look like in terms of PC demand? And how do you see it playing out for later this year?

PAT GELSINGER: Yeah. So we're expecting, you know, a nice quarter on quarter improvements in it. Part of that is by the inventory level adjustments that are now behind us. We're now at a healthy inventories at OEMs and distributors. But our product line is good. We gained market share, again, we believe.

And ushering in what we call the AI PC, with our next generation product. We call it Meteor Lake is the name for it. You know, we have new capabilities in AI built into the product that are going to allow you just to do cool things in your PC and being able to do real-time language translation, be able to do transcription in real time, video effects, all of these type of things, new gamer models.

So we see that being like the Centrino moment for bringing Wi-Fi into the PC two decades ago. We see this AI PC as ushering in a new class of applications, major application upgrades, and ISV excitements. And we're leading the way with our Meteor Lake product in the second half of this year. So healthy and great opportunity in the future.

BRIAN SOZZI: Pat, why doesn't the Street give you enough credit for what you are doing in AI? And I bring that up, you just told me you have a billion dollar plus pipeline and AI-related products. What do you need you guys need to do at Intel to get that word out?

PAT GELSINGER: Well, I think there's two things going on, Brian. And, you know, in this, I think we have yet some things to prove in the marketplace. But one is there's the accelerators, right, you know, that have now become the way that people are executing their GenAI training environments today.

And so there's a surge of interest where everybody says, hey, I got to get my GenAI models up and ready to go in my clouds or in my enterprises. And a lot of that's going to the accelerators. So does that become a depressor of Z on demand where we have a very big and healthy business. So that's one effect that people are trying to understand in the market.

And then the second effect is more aligned with your question is, OK, Intel, are you going to participate in that accelerator market? And, you know, I'll just say we haven't been as aggressive out of the chute as we should have been. And now with our Gaudi product line really starting to get interest in the marketplace, customer pipeline is a building very rapidly, and we have a very robust roadmap. Gaudi 2 is shipping in volume today. Gaudi 3, I just received first silicone it. So it's sort of like a 2x level of capability. And, you know, we'll be launching that for volume shipments next year. And then our 2025 product is already well underway.

So '23, '24, '25, you know, we're showing up. We're starting to make a impact in the marketplace. But we have to prove it because we have a clear market leader who's executing very well. And I also see that as a potential Foundry opportunity that we're actually going to become, you know, a foundry supplier for some of those AI chips as well. So we see the potential to be a provider of those chips, those AI accelerators, but also a foundry for those chips at both the wafer and the packaging level.

BRIAN SOZZI: A couple of your competitors, Pat, I think you may be referring to Nvidia, maybe or maybe not. But a company like that, they just had a really almost a $4 billion reset higher in guidance. But I hear everything you're doing in AI now. I mean, do you think you will have a similar moment next year as these AI accelerators that you're making get into the market of people in the street needs to reset its expectations for your company in terms of how much profit you can earn and how much revenue you can earn?

PAT GELSINGER: Well, I'll just say, you know, Nvidia's done a good job in this space. And they've really led the way. And as I like to say, they worked super hard. And they got lucky in really being at the right place at the right time for some of these algorithmic breakthroughs.

And the AI space is still fairly young. So I think there's a lot of opportunity for us looking forward. We're starting to show up, you know, winning customers and getting real enthusiasm, because the market wants alternatives here. And so we're hearing our customers really saying, OK, how can you show up to give us good alternatives that are more cost-effective, power-efficient, capabilities that the competition doesn't offer?

So I feel good about our roadmap. I do think that we will start to incrementally get more credit for that, as we go into next year. But I have to execute that well. So I think in this regard, I think this is one of those green shoots that another quarter or two under our belt, I think we'll start getting credit from it from the market's perspective.

BRIAN SOZZI: I know you're very much a globe-trotting CEO. You're constantly on the road visiting other countries, pounding the table for Intel's business. We just had a credit rating downgrade in the US. As a global CEO that has many connections overseas and who has been doing this for a while, I mean, what do you think this downgrade says about the state of this country? And what does it mean to a business like Intel?

PAT GELSINGER: Well, I'd say, overall, you know, is anything going to displace the US dollar as the global currency for trade? And I just say, I don't see anything on the horizon, you know, for that. So at one level, I just sort of say, OK. It's a downgrade. Hey, there may be some implications or costs of debt. But I really see that as somewhat minor. You know, I view it more as a statement, hey, get our debt situation under control in the US. And the credit agencies are starting to get a little bit more concerned in that regard, right?

But I'd say the terms of the impact of me running the Intel as a business or CEOs like myself running global businesses, I don't see that much real impact from this change. You know, that said, hey, you know, the more stable global currencies are, the more they see the US, right, as that leader that everybody can bet on as we get our own inflation situation under control.

And the ability to now start being that leader of global trade again is something that we've put a lot of emphasis on. We want open global markets. We want to be able to sell our products globally. I think all of these tie together to say, this is what it takes to run a great business today. It's a globally interconnected market. We want balance and resilience in the supply chains. And we want access to global markets.