Intel Struggles with Market Share and Profitability: Insights from Q3

Intel Corp (NASDAQ: INTC) faces ongoing challenges in regaining market share and achieving profitability. Recent ratings and price targets indicate a cautious perspective for the semiconductor giant following its third-quarter performance report.

On Thursday, Intel announced an earnings per share (EPS) loss of 46 cents, which was significantly wider than the expected loss of 2 cents. Despite this, the company reported quarterly revenue of $13.28 billion, exceeding the consensus estimate of $13.02 billion.

Analyst Perspectives on Intel

Goldman Sachs analyst Toshiya Hari kept a Sell rating on Intel even after the company’s better-than-anticipated results for the third quarter and a more promising outlook for the fourth quarter. The firm highlighted ongoing competitive hurdles in Intel's Data Center Compute segment and limited prospective revenue from external foundry clients as major concerns.

While there was stability in revenue across certain areas, Goldman Sachs pointed out substantial pressure on Intel’s gross margins. The company reported a non-GAAP gross margin of 18% for the third quarter—20 percentage points below the earlier guidance given by Intel.

Goldman Sachs noted the rising total cost of ownership of AMD's x86 CPUs and intensified competition from custom processors developed by large cloud service providers, which continue to pose significant challenges for Intel's Data Center CPU operations.

Additionally, Intel's inability to provide a competitive accelerator for AI applications—a rapidly growing market—further limits its growth prospects in this sector. In light of this situation, Goldman Sachs has revised its EPS estimates for 2024 to 2026 and lowered its 12-month price target from $21 to $20.

Benchmark analyst Cody Acree maintained a Hold rating on Intel, given the mixed results from the third quarter and the limited catalysts available in the near term. The report recognized slight improvements in Intel's fundamentals, supported by restructuring and cost-cutting initiatives, but emphasized the persistent competitive pressures exerted by AMD and Nvidia.

Although Intel's Data Center segment fared better than initially forecasted, AI product offerings fell short, and the company’s dependence on outsourced manufacturing for newer products, such as Lunar Lake, could negatively affect its margins.

Needham analyst N. Quinn Bolton also upheld a Hold rating on Intel. The analyst acknowledged that the top-line performance was better than expected but noted that accelerated foundry development is likely to impact margins negatively.

Changes in gross margin estimates were made downward, resulting from impairment charges and slower-than-expected adoption of Gaudi AI products, which has led to the removal of the $500 million revenue target for Gaudi in fiscal year 2024. Overall, the firm maintains a cautious stance on Intel’s near-term trajectory.

Rosenblatt analyst Hans Mosesmann downgraded Intel to a Sell rating and modified the price target from $17 to $20. The outlook for the fourth quarter, set at $13.8 billion, falls short of the previous $14 billion estimate, suggesting mixed dynamics among products and ongoing adjustments within Intel's operations.

Rosenblatt highlighted that while upfront transition costs have been incurred, the associated benefits are not expected to materialize until 2026, making 2025 a transitional year for the company.

Oppenheimer analyst Rick Schafer also remains skeptical, pointing out the continuing loss of market share to AMD and the slow adoption of AI technologies. Oppenheimer kept a Perform rating, stressing the need for Intel's turnaround initiatives to start yielding results amid ongoing margin challenges.

Truist analyst William Stein retains a Hold rating on Intel, raising the price target slightly from $25 to $26. The firm expresses unease regarding the reliability of future earnings metrics and highlights the sluggish uptake of Gaudi accelerators, which are crucial for Intel to take advantage of transforming AI workloads. They anticipate ongoing restructuring efforts and the potential for additional one-time charges in 2025.

KeyBanc Capital Markets analyst John Vinh assigned a Sector Weight rating to Intel. The firm indicated that Intel’s third-quarter results and fourth-quarter guidance surpassed expectations slightly, with revenue beating estimates due to advancements in data center AI and networking, although client inventory destocking kept CCG revenues stable.

KeyBanc remarked that Intel's outlook suggests modest revenue growth in the future, but notable challenges still lie ahead, particularly due to slow Gaudi demand negatively impacting AI revenue ambitions.

Price Movement: Following these updates, Intel stock saw an increase of 7.55%, reaching $23.15 on the day of publication. According to available data, Intel's stock has a 52-week high of $51.28 and a 52-week low of $18.51.

Conclusion: Intel’s future performance remains uncertain, affected by competitive dynamics and internal restructuring efforts. The outlook remains cautious from various analysts, as they focus on the company's ability to navigate these challenges effectively.

Intel, Market, Earnings