Morningstar

Intel Earnings: Relatively Strong, but Turnaround Risks Remain

We think Intel stock is moderately overvalued.

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 INTC reported third-quarter revenue of $13.7 billion, up 6% sequentially, up 3% year over year, and above the high end of guidance. Adjusted gross margin of 40% also exceeded guidance of 36%.

Why it matters: Intel reported strong third-quarter results, led by healthy PC demand amid upgrades to Microsoft Windows 11. Yet the bigger stories, in our view, pertain to news in recent weeks, such as investments made into Intel by the US government and Intel’s partnership with Nvidia.

  • Still, we’re pleased with Intel’s third-quarter gross margin, which increased due to a favorable product mix. We’re also encouraged by recent cost savings, as third-quarter GAAP operating expenses were down 20% year over year.
  • Client computing revenue rose 5% year over year, thanks to the PC refresh to Windows 11. However, Intel continues to sell a higher mix of older PC processors, which is good for margins, but concerns us on the technological front, as customers aren’t massively adopting Intel’s best products.

The bottom line: We maintain our $28 fair value estimate for no-moat Intel. Shares rose about 7% after hours on the strong third-quarter results, but we still think Intel has a long way to go to successfully complete its turnaround. We think the stock price appreciation is a bit overdone.

  • One key valuation driver is whether Intel can attract external foundry customers to use Intel 14A over the next couple of years. Admittedly, Intel said it is optimistic about recent foundry customer engagements, but we’d like to see Intel get closer to deals before we become more excited.
  • Second, Intel will need to halt its market share losses to AMD in x86 PC and server processors, especially at the high end of the market. AMD is yet to report earnings, and while Intel’s PC growth is encouraging, it’s plausible that AMD might be faring even better in the market.

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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