Intel's Challenges in Market Share and Profitability: Q3 Analysis

Intel Corp (NASDAQ: INTC) is facing ongoing struggles to regain its market share and profitability, leading to a cautious outlook from analysts following its third-quarter results.

On Thursday, Intel revealed an EPS loss of 46 cents, which is significantly worse than the expected loss of 2 cents. On a positive note, the company reported quarterly revenue of $13.28 billion, exceeding the consensus estimate of $13.02 billion.

Analyst Insights on Intel

Analyst Toshiya Hari from Goldman Sachs has kept a Sell rating for Intel, despite the chipmaker's stronger-than-expected performance in the third quarter and improved guidance for the fourth quarter. The analyst pointed to ongoing competitive issues in the Data Center Compute sector and limited revenue opportunities from external foundry clients as major concerns.

While some revenue areas show stability, Goldman Sachs highlighted severe pressure on Intel's gross margins, reporting a non-GAAP gross margin of 18%—a staggering 20 percentage points below the company's own guidance.

The analyst specifically mentioned that Intel's Data Center CPU business is challenged by AMD's growing cost advantages in x86 CPUs and rising competition from personalized processors being created by large cloud service providers. The absence of a competitive AI application accelerator further limits Intel’s ability to tap into this rapidly expanding market. Consequently, Goldman Sachs revised its EPS forecasts for 2024-2026 and lowered its 12-month price target from $21 to $20.

Cody Acree from Benchmark also reiterated a Hold rating on Intel, reflecting the mixed third-quarter performance and the lack of immediate catalysts for growth. The firm noted slight improvements backed by cost-cutting efforts but remains cautious due to stiff competition from both AMD and Nvidia.

Intel's Data Center segment had a better performance than expected, but AI product developments did not meet expectations, and the reliance on outsourced manufacturing for new products like Lunar Lake could negatively impact profit margins.

N. Quinn Bolton from Needham has also retained a Hold rating, acknowledging the better-than-anticipated top-line results while noting that the rapid foundry developments are hurting profit margins. Needham cut gross margin estimates due to impairment charges and the slower-than-expected market reception of Gaudi AI products, eliminating the $500 million revenue target for FY24 related to Gaudi. The firm remains cautious regarding Intel's short-term performance.

Hans Mosesmann from Rosenblatt downgraded Intel to a Sell rating and updated the price target from $17 to $20. He mentioned that the fourth-quarter outlook at $13.8 billion is lower than the previous estimate of $14 billion, reflecting uneven product dynamics and further adjustments.

Rick Schafer from Oppenheimer expressed similar caution, citing Intel's ongoing loss of market share to AMD and a slow uptake of AI technologies. He maintained a Perform rating while emphasizing the need for Intel's turnaround strategies to generate results amid persisting margin pressures.

William Stein from Truist kept a Hold rating, raising the price target from $25 to $26, but highlighted concerns regarding the reliability of future earnings and the sluggish adoption of Gaudi accelerators, which could hinder Intel's ability to seize opportunities in the AI market. The firm anticipates continued restructuring efforts and potential additional one-time charges in 2025.

John Vinh from KeyBanc Capital Markets assigned a Sector Weight rating to Intel. The firm found that Intel’s third-quarter results and fourth-quarter guidance were slightly encouraging, with revenue improving from data center AI and networking segments, even as CCG revenues remained stable due to customer inventory adjustments. However, they warned of challenges in demand for Gaudi, which could hinder AI revenue goals.

INTC Price Action: As of Friday, Intel's shares rose by 7.55%, trading at $23.15. Notably, Intel has seen a 52-week high of $51.28 and a 52-week low of $18.51.

Intel, Market, Profitability