Alphabet Inc Could Ditch Intel Server Chips in Favor of IBM, Rackspace

Intel Corporation (NASDAQ:INTC) shares are down around 2% today, after Alphabet Inc. indicated that it could soon shift its data center processors to other chipmakers. Yesterday, Google's parent company announced its intentions to develop the latest open server architecture alongside Rackspace Hosting, based on IBM's newest Power 9 CPU.

Alphabet stated that it is working closely with Rackspace Hosting, Inc. (NYSE:RAX) to develop a state-of-the-art data center server, which utilizes IBM's high-powered CPUs. The aforementioned technology's success will directly impact Intel's leading position in the server chips space as the open server architecture. INTC shares plunged as low as 2.18% today, as investors began to question the company's ability to maintain its hold in the server chip industry.

On the other hand, RAX stock gained as much as 7.26% to $25.37 during the first trading hour today, after news pertaining to its strategic alliance with the search engine behemoth came to light. Yesterday, it soared around 4%.

Intel's client computing segment, which makes chips for the PC and consumer devices, has struggled to perform well since the better half of 2015, primarily due to the underwhelming end-market demand in the PC space. The ongoing weakness was somewhat corrected by the company's burgeoning Data Center division, which designs and develops server chips.

However, even Intel's Data Center segment showed serious signs of fatigue in the last quarter, as the unit's revenue grew merely 5% against the double-digit growth forecasted by the Wall Street analysts. The segment is still expanding steadily nonetheless, but there are skeptics who point toward decelerating growth.

Nonetheless, the above-mentioned strategic partnership between Google and the enterprise companies can create significant problems for Intel. This is because the Internet search giant looks to assist various other players in shifting away from its server chips.

While a broader shift away from Intel in the server segment is a possibility, numerous analysts still back the semiconductor giant to perform well. Brean Capital initiated its coverage on INTC stock with a Buy rating, along with a 12-month target price of $36.

Source → Alphabet Inc Could Ditch Intel Server Chips in Favor of IBM, Rackspace