Jan 23 (Reuters) - Intel's ( INTC ) shares plunged 12% on Friday after the company struggled to meet strong AI demand for data-center chips due to supply constraints, disappointing investors betting on its turnaround.

After years of sitting out the artificial intelligence boom that turned Nvidia into the world's ‌most valuable company, Intel ( INTC ) is finally enjoying a demand surge for its traditional server chips that are used ​alongside AI processors in data centers.

That and high-profile investments from the U.S. government, ‍SoftBank and Nvidia have reignited investor interest. Intel's ( INTC ) stock outpaced ⁠most semiconductor firms last ⁠year with an 84% gain and has extended its rally into 2026, up 47% in January so far.

But ‌the company was caught off guard by the ​demand surge and cannot keep up even as it runs factories at capacity. It also warned a spike in memory chip prices ⁠could dampen sales in the PC market, ‍where its ​new "Panther Lake" PC chips were expected to spark a comeback after years of market share losses to AMD .

The memory chip surge, driven by increasing ‍AI demand, is also expected to weigh on outlook for consumer electronics firms. But Intel CFO David Zinsner said he expected available memory supply to improve in the second quarter after hitting its lowest levels in the first quarter.

Friday's losses followed quarterly profit and revenue forecasts that were below estimates. The drop will erase ​about $31 billion ‍from Intel's ( INTC ) market value, if the premarket moves hold.

"The server cycle seems real, but the company appears to have woefully misjudged it with its ​capacity footprint caught massively off guard," said analysts at Bernstein.

The company faces a lag in changing the type of semiconductors it makes, which would hamper efforts to increase production of the more profitable data-center processors.

Investors are closely examining Intel's ( INTC ) turnaround under CEO Lip-Bu Tan, who has focused on cutting costs and eliminating management layers while championing a fresh product road map.

"Server ​market does sound better overall, but Intel ( INTC ) has much lower share in the Cloud vs AMD and is still struggling with product issues," analysts at Jefferies said in a note.