Gaining 50% Over The Last 12 Months, Will Intel Stock Rally Further After Q4 Results?

Intel stock (NASDAQ: INTC) is expected to publish its Q4 2023 results on January 25. We expect revenue for the quarter to come in at about $15.2 billion, in line with consensus estimates. This would mark an increase of about 8% versus the previous  year. We expect the company to post a net profit of $0.45 per share, roughly in line with estimates. So what are some of the trends that are likely to drive Intel’s results?

Intel’s performance has been tough over much of 2023, with the PC industry undergoing a slump, as the tailwinds such as remote working and learning seen through Covid-19 eased. Global shipments of PCs stood at 67.1 million in Q4 2023, down 2.7% from the prior year, per preliminary numbers from research firm IDC. However, Intel should fare better, as PC vendors worked through chip inventory that they built through the pandemic over the first few quarters of 2023. This could result in stronger demand for the likes of Intel as PC vendors replenish their inventory. Things could be somewhat more mixed on the data center front, amid mounting competition from AMD and also because cloud computing players have been increasingly focused on securing graphics processors for artificial intelligence workloads. Intel could see some improvement in sales for its Xeon processors, although this could be partly offset by declines in the Programmable Solutions Group.

Amid the current financial backdrop, INTC stock has seen little change, moving slightly from levels of $50 in early January 2021 to around $45 now, vs. an increase of about 25% for the S&P 500 over this roughly 3-year period. Overall, the performance of INTC stock with respect to the index has been quite volatile. Returns for the stock were 3% in 2021, -49% in 2022, and 78% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that INTC underperformed the S&P in 2021 and 2022.

In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Information Technology sector including AAPL, MSFT, and NVDA, and even for the megacap stars GOOG, TSLA, and AMZN. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could INTC face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months – or will it see a strong jump?

While Intel stock could move a bit higher if it beats earnings estimates, we think it is a bit overvalued at current levels.  Intel trades at about 25x consensus 2024 earnings, which we think is a relatively rich valuation given the competitive threats to Intel’s data center business. Intel is also now betting heavily on becoming a foundry player, producing chips for other semiconductor companies, and taking on the likes of TSMC and Samsung Electronics. It remains to be seen whether this capital-intensive bet will pay off. We value Intel stock at $38 per share, which is about 20% below the current market price. See our analysis of Intel Valuation for more details on what’s driving our price estimate for Intel.

[1] Returns as of 1/15/2024
[2] Cumulative total returns since the end of 2016

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