Source: PaxForex Premium Analytics Portal, Fundamental Insight
In a market driven by AI advancements, Intel has been a surprising underperformer in the semiconductor industry this year. Unlike AI-centric chip companies like Nvidia, which have seen significant gains, Intel's stock has dropped by over 50% in 2024. To make matters worse, Intel was recently removed from the Dow Jones Industrial Average, replaced by Nvidia.
Facing a challenging PC market, revenue drops, and a drawn-out process of transitioning to a third-party foundry model, investor optimism in Intel's recovery has waned. Yet, Intel's recent Q3 earnings report and other recent developments suggest there could still be hope. Here are three reasons why investors might consider Intel in 2025.
- Promising Q3 Performance and Q4 Outlook
This past summer, Intel surprised investors by missing revenue and profit targets and issuing a cautious Q3 forecast. However, its Q3 results were better than expected, with revenue reaching $3.3 billion - 6% lower year-over-year but surpassing the $3.0 billion projection, and improving from $12.9 billion in Q2. Adjusted earnings per share were also stronger than anticipated at $0.17, compared to the expected $0.03 loss.
Looking ahead, Intel's Q4 guidance includes a projected revenue range of $13.3 billion to $14.3 billion and positive adjusted EPS of $0.12, exceeding analyst estimates.
- Success with New Products and Increased Profit Margins
Intel's recent product rollouts show promise, particularly where new technologies have been introduced. For instance, while its core Client segment declined slightly from $7.4 billion to $7.3 billion, Intel's new Lunar Lake chip launched in September boosted notebook sales, which in turn helped increase operating profit despite a small revenue dip. This suggests that Intel’s latest technologies are driving higher profitability.
Intel's newly launched desktop CPUs, branded Arrow Lake, are expected to enhance desktop revenues in Q4 and into 2025. Additionally, Intel's data center division showed strong growth, with revenue rising 9.9% and operating profit increasing by 25.7% over Q2, aided by its new Xeon 6 processors, Granite Rapids and Sierra Forest.
- Progress with Intel's Critical 18A Node
Intel's ambitious 18A process node is on track for mass production by mid-2025, with Amazon already signed on as a customer. Intel CEO Pat Gelsinger announced two other design wins for 18A technology, which Intel believes will allow it to surpass TSMC in manufacturing capabilities. Gelsinger also confirmed that Intel’s Clearwater Forest for data centers and Panther Lake for PCs have reached key development milestones for 18A.
While some have criticized Intel’s manufacturing progress and even called for the company to separate its design and manufacturing divisions, former CEO Craig Barrett recently endorsed Gelsinger's strategy. Barrett highlighted Intel's innovations in high NA EUV lithography and backside power delivery, which position the company well for future growth.
Not everything in Q3 was positive - Intel's Gaudi 3 accelerators saw a slower-than-expected adoption due to customer challenges with new software. Nonetheless, the improvements in Intel’s technology and profitability overshadowed these setbacks. Trading at book value, Intel presents a potential opportunity for value-focused investors as we approach 2025.
As long as the price is above 20.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 24.96
- Take Profit 1: 28.00
- Take Profit 2: 32.00
Alternative scenario:
If the level of 20.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 20.00
- Take Profit 1: 18.00
- Take Profit 2: 16.00
