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Intel (INTC) stock has had a tough year. It is down over 55% year-to-date, far underperforming the broader market. The sharp decline in Intel’s stock price reflects weak revenue, market share losses to rivals like Advanced Micro Devices (AMD), and pressure on its profit margins.
This leader in the semiconductor industry faces significant challenges. Moreover, Intel has failed to capitalize on the artificial intelligence (AI) boom. The company has struggled to keep up with the competition, and as a result, its stock price has taken a hit.
However, a key event for Intel is coming up, as its Q3 earnings are set to be released on Thursday, Oct. 31. A positive forecast from management could give the stock a much-needed boost.
That said, investors should be cautious, as the company’s leadership warned during the Q2 conference call that the second half of 2024 could be even tougher. The company faces growing headwinds, including shrinking margins and increased competition, which may make reversing the stock's downward trend difficult.
With this backdrop in mind, let’s explore what’s in store for Intel investors in Q3.
Intel’s Q3 Revenue to Remain Weak
Looking ahead to Intel's Q3 earnings report, the tech giant is most likely bracing for continued challenges. The company’s recent performance and management’s comments suggest that revenue may remain sluggish, mainly due to decreased spending across both consumer and enterprise markets, particularly in China.
Intel is also shifting its focus toward investments in AI server technologies within the cloud, which has reduced its Total Addressable Market (TAM) expectations for 2024. This shift has also contributed to elevated inventory levels among customers.
With these market dynamics, Intel anticipates that its revenue will experience a significant decline as customers reduce their inventory in the latter half of the year. Additionally, ongoing export controls are expected to exert a modest negative impact on the company's performance. Consequently, Intel forecasts below-seasonal revenue growth for Q3, projecting flat-to-declining performance in its client business, alongside only modest growth in data center and edge markets.
However, there is a silver lining. Intel expects to exit the quarter with healthier inventory positions, supported by a continued enterprise refresh cycle, which could improve its top line in Q4.
Intel's revenue guidance for Q3 is between $12.5 billion and $13.5 billion. At the midpoint of $13 billion, this reflects an approximate year-over-year decline of 8.5%.
Analysts Predict Q3 Losses for Intel
Intel faces margin headwinds, and analysts expect the company to report a Q3 loss. The consensus calls for Intel to post a loss of $0.20 per share, compared to adjusted earnings of $0.41 per share in the prior-year quarter.
While Intel is taking steps to enhance near-term profitability, its gross margins are likely to face pressure. This is due to a combination of modest revenue growth and the costs associated with ramping up new manufacturing technologies.
Furthermore, the company’s increasing reliance on external wafers for its upcoming AI PC products will likely hurt its gross margins in the coming quarters.
Cost Savings to Support INTC's EPS
Intel is currently facing challenges, with lower-than-expected revenue projected for the latter half of the year, which will impact its gross margins and earnings. In response, the tech giant is implementing a series of aggressive cost-saving measures designed to strengthen its bottom line.
The company is ramping up efforts to improve profitability and capital efficiency, with an ambitious target of saving over $10 billion by 2025. This plan includes significant reductions in operating expenses, aiming to bring costs down to approximately $20 billion in 2024 and further decrease them to around $17.5 billion in 2025. This represents a notable decrease of over 20% from previous projections.
A significant component of this cost-reduction strategy includes a planned workforce reduction by the end of this year. Intel is streamlining its operations with these measures, setting the foundation for future earnings growth.
The Bottom Line for INTC Stock
Intel is focused on accelerating growth by zeroing in on the burgeoning AI personal computer market. This segment will likely experience substantial growth in the coming years, presenting a significant opportunity for the tech giant.
The company also plans to launch its first client CPU built on the advanced Intel 18A process in the latter half of 2025. This new product promises enhanced performance and cost-effectiveness, driving sales volume and improving profit margins.
Despite these developments, Intel faces near-term challenges that could impact its financial results and hinder a rapid recovery in its share price.
Currently, analysts are cautious about Intel's stock, which is reflected in the consensus rating of “Hold.”
Given the notable decline in its value, the analysts’ average price target of $29.36 indicates a potential upside of approximately 30.6% from current levels.
On the date of publication, Amit Singh 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.
