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Should INTC Be in Your Portfolio Post Healthy Q4 Earnings?

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Intel Corporation (INTC - Free Report) reported relatively healthy fourth-quarter 2024 results, with adjusted earnings and revenues beating the respective Zacks Consensus Estimate. The quarterly revenues were near the higher end of the company’s guided range as Intel witnessed healthy growth in its core x86 architecture and strong interest in the Intel 18A process node.  

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Despite solid traction from an accelerated ramp-up of artificial intelligence (AI) PCs, margins were significantly affected by cost-cutting initiatives to accelerate profitable growth. However, management envisions robust growth opportunities with a strong product roadmap and semiconductor ecosystem, likely setting it apart from the competition.

INTC Focused on an Unchanged Core Strategy

The interim management has vouched that Intel’s core strategy would remain unchanged despite efforts to drive operational efficiency and agility. The company aims to emphasize the diligent execution of operational goals to establish itself as a leading foundry.

However, management observed that the company needs to witness a significant cultural change to transition from Integrated Device Manufacturing to being a world-class foundry. This would involve a shift from a “no wafer left behind” mindset, where the company built extra capacity to meet demand (hoping that the added capacity would not be idle at any time) to “no capital left behind” mindset that aims to drive efficiency by eking out every wafer possible from the existing capacity.

INTC Rides on AI Chip Traction

Intel witnessed healthy traction in AI PCs that has taken the market by storm and remains firmly on track to ship more than 100 million by the end of 2025. Panther Lake – the chip based on Intel 18A and the architectural successor to the well-received Lunar Lake – is slated to be launched in the second half of 2025, while Clearwater Forest – the first Intel 18A server product – is likely to be unveiled in the first half of 2026. 

The company has introduced the Intel Core Ultra, which features a neural processing unit that enables power-efficient AI acceleration with 2.5x better power efficiency than the previous generation. With superior GPU and CPU capabilities, it can speed up AI solutions. The company also launched the new vPro platform with Intel Core Ultra processor that delivers enhanced power efficiency. With dedicated AI acceleration capability spread across the central processing unit, graphics processing unit and the new neural processing unit, it will unlock an endless new wave of AI experiences across all apps.

INTC Plagued By Multiple Challenges

Although Intel has scaled its AI footprint, it is lagging behind rival NVIDIA Corporation (NVDA - Free Report) on the innovation front, with the latter’s H100 and Blackwell graphics processing units (GPUs) being runaway successes. Leading technology companies are reportedly piling up NVIDIA’s GPUs to build clusters of computers for their AI work, leading to exponential revenue growth. 

An accelerated ramp-up of AI PCs further affected Intel’s short-term margins as it shifted production to its high-volume facility in Ireland, where wafer costs are typically higher. Margins were also adversely impacted by higher charges related to non-core businesses, charges associated with unused capacity and an unfavorable product mix. 

Intel has been facing challenges due to the disruptive rise of over-the-top service providers in this dynamic industry. Price-sensitive competition for customer retention in the core business is expected to intensify in the coming days. Aggressive competition is likely to limit the ability to attract and retain customers and affect operating and financial results.

Moreover, the pervasive growth of AI is driving an unprecedented demand for silicon chips to boost overall manufacturing capacity in the industry. Although Taiwan Semiconductor Manufacturing Company Limited has remained a valued supplier to Intel Products, a bitter U.S.-China trade relationship and strained geopolitical relations between China and Taiwan cast doubts over the former’s ability to maintain uninterrupted chip supply to help Intel become a world-class foundry.

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Price Performance

The stock has plunged 54.7% in the past year against the industry’s growth of 59.4%, lagging its peers Advanced Micro Devices, Inc. (AMD - Free Report) and NVIDIA. Much of this underperformance is due to severe financial difficulties and operational challenges, which have forced management to undertake a comprehensive review of its businesses. 

Intel is mulling various options, including the potential split of its product design and manufacturing divisions and evaluating which factory projects should be terminated. It also plans to establish Intel Foundry as an independent subsidiary to unlock strategic benefits and improve capital efficiency with clearer separation and independence from the rest of Intel. The division incurred an operating loss of $2.26 billion in the fourth quarter.

One Year INTC Stock Price Performance

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Estimate Revision Trend of INTC

Earnings estimates for Intel for 2025 declined to 51 cents from 78 cents over the past seven days, while the same for 2026 has declined 19.6% to $1.19. The negative estimate revision depicts bearish sentiments for the stock.

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End Note

Intel's innovative AI solutions hold immense promise for the broader semiconductor ecosystem. By addressing the challenges of scalability, performance and interoperability, it is paving the way for widespread AI adoption across enterprises worldwide. Management is focusing on simplifying parts of its portfolio to unlock efficiencies and create value. It has aimed to allay investor concerns by reiterating its short-term guidance while maintaining core focus.

However, the recent product launches appear “too little too late” for Intel. In addition, margin woes amid strict export restrictions, unfavorable product mix and elevated customer inventory levels weigh on its bottom line. With declining earnings estimates and abysmal price performance compared with its peers, the stock is witnessing a negative investor perception. With a Zacks Rank #3 (Hold), Intel appears to be treading in the middle of the road, and investors could be better off if they trade with caution. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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