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Wednesday, February 5, 2025

Intel’s Q3 Woes: Is the Chip Giant Losing Its Grip?

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Intel’s Mixed Q3 Results Spark Cautious Outlooks Among Analysts

Intel Corp (INTC) reported its third-quarter earnings, revealing a mixed bag of results that left analysts with a cautious outlook. While the company exceeded revenue expectations, posting $13.28 billion in quarterly revenue, exceeding the consensus estimate of $13.02 billion, a wider-than-anticipated EPS loss of 46 cents (compared to the anticipated 2 cents) dampened the overall sentiment. This performance, coupled with persistent competitive pressures and challenges in key market segments, has led several prominent investment firms to maintain or even downgrade their ratings and price targets for Intel stock. The conflicting signals regarding Intel’s future trajectory highlight the complex challenges facing the semiconductor giant in a rapidly evolving tech landscape.

Key Takeaways: Intel’s Q3 Report & Analyst Reactions

  • Mixed Q3 Results: Intel surpassed revenue expectations but reported a significantly larger-than-expected EPS loss.
  • Persistent Competitive Pressure: Analysts cite ongoing challenges from competitors like AMD and Nvidia, particularly in the data center market.
  • AI Underperformance: Intel’s AI offerings, specifically the Gaudi accelerator, have fallen short of expectations, leading to a reduction in revenue projections.
  • Margin Squeeze: Significant pressure on Intel’s gross margins, with a third-quarter non-GAAP gross margin of just 18%, points towards operational challenges.
  • Diverging Analyst Opinions: While some analysts maintain a “Hold” rating, others have downgraded Intel to “Sell,” reflecting a diverse range of views on the company’s future prospects.

Goldman Sachs Maintains Sell Rating Amidst Competitive Challenges

Goldman Sachs analyst Toshiya Hari maintained a Sell rating on Intel, citing persistent competitive challenges in the Data Center Compute segment as a primary concern. Hari highlighted AMD’s growing total cost of ownership advantage in x86 CPUs and the increasing competition from custom processors designed by large cloud providers. “**The lack of a competitive AI product and slow external foundry ramp further constrain near-term earnings growth**, particularly in a sector currently seeing explosive AI demand,” said Hari. The bank’s revised 2024-2026 EPS estimates and a reduced 12-month price target from $21 to $20 underscored its cautious stance. The significant pressure on Intel’s gross margins also played a crucial role in their negative outlook. The reported 18% non-GAAP gross margin – 20 percentage points below company guidance – illustrates the severity of the margin squeeze Intel is facing.

Benchmark and Other Analysts Echo Cautious Sentiment

Benchmark analyst Cody Acree echoed the cautionary sentiment, reiterating a Hold rating given the mixed third-quarter results and a scarcity of near-term catalysts. While acknowledging Intel’s slight improvement in fundamentals due to cost-cutting efforts and restructuring, Acree stressed the ongoing competitive pressures from AMD and Nvidia. The underperformance of AI products and the potential margin impact of relying on outsourced manufacturing for newer products like Lunar Lake were also cited as significant concerns.

Further Analyst Perspectives

Needham analyst N. Quinn Bolton maintained a Hold rating, highlighting the better-than-expected topline results but noting that accelerated foundry development is negatively impacting margins. Revised gross margin estimates downward due to impairment charges and slower-than-anticipated adoption of the Gaudi AI products (leading to the removal of the $500MM FY24 revenue target for Gaudi) further fueled this cautious view. Rosenblatt analyst Hans Mosesmann downgraded Intel to a Sell rating, citing a fourth-quarter outlook below previous estimates and a transitional period until 2026 before significant benefits materialize. Oppenheimer analyst Rick Schafer, maintaining a Perform rating, expressed concern over ongoing market share losses to AMD and the slow adoption of AI technologies, emphasizing that Intel’s turnaround efforts need to show more concrete results amidst persistent margin pressures. Truist analyst William Stein, while maintaining a Hold with a raised price target of $26 from $25, showed concern about the reliability of future earnings metrics and the slow uptake of Gaudi accelerators, impacting Intel’s ability to capitalize on AI workload transformations. Finally, KeyBanc Capital Markets analyst John Vinh held a Sector Weight rating, acknowledging the better-than-expected revenue but highlighting challenges with Gaudi demand affecting AI revenue targets.

Intel’s Q3 results, coupled with the analyst commentary, paint a picture of a company grappling with significant challenges. The competitive landscape, especially in the data center and AI spaces, is intensely challenging. AMD’s advancements and the growing prevalence of custom processors designed by cloud providers pose considerable threats. The underwhelming performance of Intel’s Gaudi AI accelerator further highlights the need for significant improvements in its product offerings to compete effectively in the rapidly expanding AI market. Intel’s reliance on outsourced manufacturing for certain products, while potentially necessary for technological advancements, also introduces additional complexities and margin pressures. The company’s ongoing restructuring and cost-cutting efforts are crucial for improving profitability, but their long-term effectiveness remains to be seen. The success of Intel’s turnaround strategy will hinge on their ability to address these key challenges, improve their competitiveness in key market segments, particularly AI, and regain lost market share.

Conclusion: A Mixed Outlook for Intel

Intel’s Q3 results presented a mixed bag, with revenue exceeding expectations but losses surpassing projections. Analyst reactions vary from cautious “Hold” ratings to more pessimistic “Sell” recommendations, reflecting the uncertainty surrounding Intel’s future trajectory. The company faces a multitude of challenges, including intense competition, margin pressures, and underperforming AI products. Whether Intel can successfully navigate these challenges and deliver on its turnaround strategy remains to be seen but the near-term outlook, judging by current analyst sentiment, remains unclear.

**INTC Price Action:** Intel shares are up 7.55% at $23.15 Friday at publication. According to data from Benzinga Pro, Intel has a 52-week high of $51.28 and a 52-week low of $18.51.

Article Reference

Lisa Morgan
Lisa Morgan
Lisa Morgan covers the latest developments in technology, from groundbreaking innovations to industry trends.

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