Stock Story -
What Happened: Shares of computer processor maker Intel (NASDAQ:INTC) fell 27.9% in the morning session after the company reported second quarter earnings results. Its revenue guidance for next quarter missed analysts' expectations, and its revenue missed Wall Street's estimates during the quarter.
Taking a closer look at the topline results, PC demand was impacted by China export controls and inventory digestion, while Server demand was affected by market share loss. Notably, the inventory-related headwinds are projected to continue till Q3, though at a more modest pace, affecting CCG (client computing group) and DCAI (Data Center & AI) segments. In addition, the company plans to cut 15% of its headcount, which was over 125,000 at the end of the second quarter. Lastly, the company suspended dividend payments which is never a good sign. Overall, this quarter could have been better.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Intel? Find out by reading the original article on StockStory, it's free.
What is the market telling us: Intel's shares are quite volatile and over the last year have had 12 moves greater than 5%. But moves this big are very rare even for Intel and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was 6 months ago, when the stock dropped 12.9% on the news that the company reported fourth quarter earnings results and provided revenue and non-GAAP EPS guidance below expectations. Intel attributed the weak guidance to "discrete headwinds" that affected some of its business segments, including Mobileye, PSG (Programmable Solutions Group), as well as business exits. However, the company expects the challenges to be temporary and guided for sequential and year-on-year growth in revenue and EPS for each quarter of FY'24.
On the other hand, revenue and EPS exceeded expectations during the quarter. Gross margin also improved, and the inventory level shrunk.
Overall, the results could have been better, with the weak outlook likely to raise concerns among investors.
Following the results, the company received a double rating downgrade, suggesting the market needs to be clearer about Intel's AI strategy as Wall Street analysts anticipate new stocks will benefit from the growing AI revolution in 2024.
Needham analyst Quinn Bolton lowered the stock's rating from Buy to Hold, adding, "We expect AI to remain the spending priority in the data center for the next several quarters...To that end, dollars will continue moving away from Intel's core competency." Similarly, Summit Insights Group revised its rating from Buy to Hold, echoing a similar sentiment as it expects "More bumpy rides with AI materially impacting Intel's traditional data center segment."
Intel is down 55% since the beginning of the year, and at $21.51 per share it is trading 57.6% below its 52-week high of $50.76 from December 2023. Investors who bought $1,000 worth of Intel's shares 5 years ago would now be looking at an investment worth $441.76.
