Intel 'Still A Work In Progress' As 'Turnaround Efforts Take Root,' Analysts Say After Q1 Disappointment

Benzinga - by Surbhi Jain, .

Intel Corp (NASDAQ:INTC) stock fell after reporting a first-quarter (Q1) revenue miss and weak Q2 EPS guidance.

The company’s quarterly earnings of 18 cents per share beat the consensus estimate by 28.57%. However, sales of $12.72 billion missed estimates by 0.44%.

Related: Intel Shares Fall On Q1 Revenue Miss, Weak Q2 EPS Guidance

CEO Pat Gelsinger remains confident in company’s future, proclaiming “Intel is back.”

Here's what analysts have to say about the earnings report.

• JPMorgan Chase analyst Harlan Sur reiterated Underweight on Intel stock, reducing the price target from $37 to $35 a share.
• Goldman Sachs analyst Toshiya Hari maintains his Sell rating on the stock, reducing the price target from $39 to $34.
• Oppenheimer analyst Rick Schafer maintained his Perform rating on the stock without stating a price target.
• Needham analyst N. Quinn Bolton, CFA reiterated Hold with no price target on the stock.
• Wedbush analyst Matt Bryson rates the stock Neutral with his 12-month price target on the stock down from $40 to $32.50 a share.
• BofA Securities analyst Vivek Arya reiterated his Neutral rating on the stock, while lowering price target from $44 to $40.
• Mizuho Securities analyst Vijay Rakesh rates the stock a Buy with price target lowered from $55 to $45 a share.

JPMorgan: According to Sur, Intel’s guidance suggests a slow recovery for PC and data center segments, requiring a strong second half for full-year outlook. There appear to be confidence issues in core compute and diversification initiatives.

Customer foundry revenue was lower than expected in Q1, but product and technology pipeline remains strong. The company’s roadmap milestones are on track, with new products like Sierra Forest and Granite Rapids ramping up. Overall, while 2Q guidance is muted, there is optimism for a gradual recovery in general compute demand but Intel “will be an underperformer relative to the group over the next 12-18 months,” Sur says.

Goldman Sachs: Intel’s 2Q24 revenue and non-GAAP EPS guidance were lower than expected, attributed to the delayed recovery in traditional server demand now expected in H2. This delay is due to Cloud and Enterprise customers prioritizing AI infrastructure spending. “AI prioritization continues to weigh on traditional server demand” said Hari.

Goldman Sachs remains “encouraged by Intel's progress in Accelerating Computing”, particularly with the launch of Gaudi3. However, it faces challenges in maintaining its share in the Data Center Compute market against competitors like Nvidia Corp (NASDAQ:NVDA) and Arm Holdings PLC (NASDAQ:ARM).

Oppenheimer: “We remain on sidelines as turnaround efforts take root,” said Schafer. He attributed Intel’s weaker Q1 performance to weaker demand and the sunsetting of non-core and traditional packaging.

Management sees Q1 as the bottom, expecting quarter-over-quarter growth throughout the year. PC and data center (DC) sales are expected to be flat in Q2, with DC leading in the second half due to the ramp of the Gaudi3 accelerator and cyclical recovery in other segments.

DC is expected to be up about 25% this year. Despite optimism, Intel’s roadmap and technology leadership are concerns for Schafer. While constructive on the data center outlook, caution remains regarding PC unit growth.

Needham: Bolton’s Hold rating is due to Intel’s high valuation, declining revenue estimates, growing competition, and distant IFS revenue contributions, “all setting up for a more difficult road ahead“.

Intel faces challenges in the data center market, said Bolton, with wallet share shifting to AI-compute and competition from new architectures like ARM-based CPUs and evolving ASICs. While losses in Desktop and Notebook share have slowed, positive PC trends are insufficient to support INTC’s CY24 PC unit TAM.

Wedbush: Intel Corp is “still a work in progress,” said Bryson. He notes that Intel’s guidance for >$500M in Habana sales in 2H’24 was below expectations, despite prior commentary suggesting a larger backlog and increased AI accelerator spending.

While Sierra Forrest and Granite Rapids are on track for release, Bryson sees their impact on Intel’s share and revenues being modest. Additionally, Meteor Lake experienced increased demand in CQ1, with units expected to double in CQ2, but supply constraints are hindering Intel’s ability to meet this demand as it ramps up wafer level assembly.

Wedbush also thinks “the recent pessimism weighing on the stock is arguably overdone.” But, analysts “still aren’t comfortable yet in getting more constructive around Intel.”

BofA Securities: Arya noted “higher costs, lower growth, tough competition,” as three key attributes identifiable with Intel’s Q1 earnings report and future outlook.

Intel’s Q1 earnings met expectations, but Q2 guidance disappointed due to high costs. While Arya sees the company’s strong enterprise position and US manufacturing assets offering potential, limited AI exposure could hamper growth. Q2 sales missed targets amid weak macro demand.

However, Intel anticipates a strong second half driven by cyclical improvements, AI PC growth, and positive enterprise trends. The company is focusing on the Gaudi3 ramp, CHIPS grants, and cost reductions to improve profitability. Challenges include losing server market share and competition in AI accelerators. Arya sees Intel’s future success depending on leveraging manufacturing synergies and managing competition from Taiwan Semiconductor Manufacturing Co Ltd (NYSE:TSM).

Mizuho Securities: “We remain positive on INTC given stable compute server share, Sierra Forest and Granite Rapids product ramps ahead, and valuation with low expectations,” said Rakesh.

According to Rakesh, Intel’s data-centric AI (DCAI) segment remains flat as the company plays catch-up with peers, with the Gaudi3 ramp in 2H expected to contribute but still at a small scale.

Intel’s data center (DC) is estimated to grow by 4% y/y in 2024, compared to Nvidia’s consensus estimate of 102% y/y growth.

Intel is ramping its foundry business, adding external customers and anticipating margins to trough in 2024 before a stronger ramp in 2025. Despite a disappointing June quarter guide, Rakesh believes new product ramps and stable server share, combined with low expectations, could limit downside as Intel trades at a lower P/S multiple compared to Advanced Micro Devices Inc (NASDAQ:AMD) and Nvidia.

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