A Strong Q3 Can Push Intel Stock Up After A 55% Slump This Year

Intel stock (NASDAQ: INTC) is expected to publish its Q3 2024 results around October 31. We expect revenue for the quarter to come in at about $13.1 billion, roughly in line with consensus estimates and down about 8% compared to last year. We expect the company to post a net loss of $0.01 per share, slightly ahead of consensus estimates.  See our analysis of Intel Earnings preview for a closer look at some trends that could drive Intel’s results.

In Q2 2024, Intel’s product revenue reached $11.8 billion, a 4% increase year-over-year, primarily driven by stronger sales of its PC chipsets. However, the PC market softened in Q3, with global shipments down 1.3% year-over-year to 62.9 million units, according to Gartner. While Intel continues to face competition from AMD’s Ryzen line, which could impact growth, the company gained some share in the PC market last quarter, driven by growth in entry-level mobile CPUs for devices such as Chromebooks. On the server side, Intel has been facing pressure from AMD’s EPYC chips which have been gaining market share amidst Intel’s delays in transitioning to smaller process nodes. In Q2, Intel’s Data Center and AI sales fell 3%. While similar headwinds could persist into Q3 for Intel, the company could see some incremental upside from its Sapphire Rapids processors.

We will be closely watching the performance of Intel’s foundry business.  Intel has been betting heavily on becoming a foundry player, producing chips for other semiconductor companies, and taking on the likes of TSMC and Samsung Electronics. Things haven’t gone smoothly for the business due to Intel’s missteps which caused it to outsource a considerable amount of wafer production for some of its latest chips. Although Intel doesn’t expect the business to break even until 2027,  we will be looking for updates on the business.

Much of the success of the foundry business will hinge on Intel’s new 18A manufacturing process. While production on this process is expected to begin in 2025, Intel announced in early August that it had reached critical milestones, noting that the chips made with this process had powered on, booted Windows, and were operational within Intel.  Once Intel transitions its latest server and PC chips to this process node, ending its outsourcing of chips to TSMC, we could see higher utilization rates, which would help reduce costs.  If the company executes well on its foundry plans and delivers compelling new CPU and GPU chips, Intel could see almost 3x upside. On the other hand, if it fails to execute, Intel stock could see a downside to $10 Intel has had some high-profile customer wins for the foundry business in recent months, to make AI chipsets for Amazon’s cloud division, AWS, as well as a reported $3 billion-plus win from the Pentagon.

The decrease in INTC stock over the last 4-year period has been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for the stock were 6% in 2021, -47% in 2022, and 95% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it 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 around rate cuts and multiple wars, 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 recovery?

We believe that Intel’s valuation is reasonable, with the stock trading at just about 20x consensus 2025 earnings. Intel is getting much more serious about its cost cuts. The company intends to cut over 15% of its workforce, which could amount to over 15,000 layoffs while aiming to slash costs by as much as $10 billion by next year. This could help manage the company’s bottom line over the coming quarters as its next wave of CPU, GPU, and foundry bets begin to bear fruit.

AI has dominated the narrative in the tech industry post-Covid-19, leading to weaker demand for CPUs in PCs and general servers, which are Intel’s core business. However, a potential demand upcycle could emerge in the near-term, as companies and consumers refresh aging computers in the coming years. This would benefit Intel, which is expected to introduce its latest chips and advanced manufacturing technologies by then. We value Intel stock at about $30 per share presently, which is 35% ahead of the current market price of $22. See our analysis of Intel Valuation for more details on what’s driving our price estimate for Intel. We also highlight the catalysts for Intel stock recovery in this analysis.

[1] Returns as of 10/17/2024
[2] Cumulative total returns since the end of 2016

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