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Q2 earnings results are expected for Intel (INTC) after today’s close, and investors will focus on the performance of Intel’s data center unit, which has struggled to maintain its once-dominant position in the face of competition from Nvidia (NVDA) and Advanced Micro Devices (AMD). Any positive results could inspire investors after recent quarters saw Intel’s profits fall amid weak demand for computers and its own heavy spending to regain market leadership.
Intel’s Q2 earnings are expected to fall -47 cents a share on revenue of about $12 billion, representing a -22% decline from the year-ago period. According to Blomberg Intelligence, Intel’s full-year sales are seen falling -18.5%, compared with the decline of -8.9% expected for the chip sector overall. Intel trades at 2.6 times estimated sales, a discount to its 10-year average and the Philadelphia Stock Exchange Semiconductor Index ($SOX).
Despite expectations of contracting sales and falling revenue, Intel has taken a number of steps to save money and improve profitability, including slowing spending on new plants and cutting its dividend. Intel’s management also said the company remains on track with its target of regaining manufacturing leadership by 2025, which could be a catalyst for growth. Sanford C. Bernstein said, “On the other hand, investor interest is shifting away from Intel’s core markets, and the question of what AI and accelerators might mean for the data center CPU market is now garnering more attention.”
Some analysts believe the steps that Intel has taken to save money and improve profitability will soon show up in its earnings results. The Futurum Group said, “While caution is warranted, Intel is trading at an incredibly low multiple, expectations are extremely low, and any signs of strength or growth could lead to a rally on the idea that it was oversold and underpriced.” Also, Citigroup recently opened an upside catalyst watch on Intel, expecting the company’s earnings results to show “upside to estimates from the PC recovery.”
Most analysts remain skeptical about a recovery in Intel. The recommendation consensus on shares of Intel, a proxy for its ratio of buy, hold, and sell ratings, is the lowest among the 30 components of the Philadelphia Stock Exchange Semiconductor Index. Intel’s Xeon chips once accounted for 99% of the server market. However, the massive ramp-up in artificial intelligence (AI) hardware has data center owners turning to chips made by Nvidia, tripling its stock price this year, and to chips from Advanced Micro Devices, sending its shares soaring 70% compared to a 30% gain this year for Intel. Futurum Group said, “Intel needs to have a role in AI, and it can be a solid beneficiary of AI even if it is number two or three behind Nvidia.”
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
