Morningstar

Intel Earnings: Q1 Data Center Revenue Guidance Was a Letdown; Shares Overvalued

We raise our fair value estimate for Intel stock.

The Intel logo can be seen at the headquarters of the chip company.
Andrej Sokolow/picture alliance via Getty
Securities in This Article
Intel Corp
(INTC)

Key Morningstar Metrics for Intel

What We Thought of Intel’s Earnings

Intel’s INTC fourth-quarter revenue was $13.7 billion, flat sequentially and down 4% year over year, but toward the high end of guidance. Intel’s first-quarter revenue guidance of $12.2 billion at the midpoint would be down 11% sequentially and worse than FactSet consensus.

Why it matters: We’re disappointed with Intel’s forecast. We think investors were optimistic about Intel’s server processor (CPU) business within its data center, or DCAI, segment. While revenue was up 15% sequentially in the fourth quarter, revenue should be down sequentially in the first quarter.

  • Server CPUs appeared poised to prosper in the near term amid a tremendous artificial intelligence buildout, which might be causing shortages that will give Intel some pricing power. However, this burst in demand was ahead of Intel’s capacity, so the company can’t fully capitalize on it in the near term.
  • We also suspect investors were optimistic about Intel announcing a large external foundry customer. This did not happen, although Intel pointed to an analyst day in the second half of this year that might give the firm a platform to announce some external customer commitments.

The bottom line: We raise our fair value estimate for no-moat Intel to $32 from $28 due to stronger DCAI prospects. Still, shares appear materially overvalued as investors appear too optimistic about external foundry revenue, all while we still foresee risks of further share loss in PC and server CPUs.

  • Intel’s stock rose 16% this week ahead of earnings to $54, but fell as much as 13% to $47 after hours, which is roughly where the stock traded last week. We think investors were anticipating a huge revenue beat or customer announcement and instead received a letdown.
  • While we see signs of life for Intel in DCAI, we can’t rule out the possibility that Intel’s supply shortage might drive even more customers over to rival AMD in the near term.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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