Is Intel Back? 3 Reasons to Take Intel's Turnaround Seriously.

Billy Duberstein, The Motley Fool
6 min read

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In an AI-led market, the notable underperformer in the semiconductor space this year has been Intel (NASDAQ: INTC).

While many AI-oriented chip stocks like Nvidia are up a lot on the year, Intel finds itself down just over 50% for 2024. To add insult to injury, the stock was just kicked out of the Dow Jones Industrial index last Friday, displaced by Nvidia itself.

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Amid a tough PC market, revenue declines, and Intel's plan to become a third-party foundry taking longer than some may have expected, investors have seemingly given up on the turnaround. However, Intel's recently reported Q3 results and other recent news items indicate news of its death may be premature. Here are three reasons to believe heading into 2025.

1. Q3 results and fourth quarter guidance were reassuring

Intel had somewhat shocked investors back over the summer, after it missed on both revenue and profit expectations while also guiding conservatively for the third quarter.

But third quarter results showed things aren't falling apart. Revenue came in at $3.3 billion, down 6% year over year but well ahead of analyst expectations for $3.0 billion and also up from $12.9 billion in the second quarter. While Intel's bottom line was affected by a number of restructuring, accelerated depreciation, and goodwill impairment charges, adding those back would have yielded adjusted (non-GAAP) earnings per share of $0.17, far better than the $0.03 loss per share predicted by analysts.

Better-than-feared revenue and profits were great to see, as was fourth quarter guidance for revenue between $13.3 billion and $14.3 billion and positive adjusted EPS of $0.12. That guidance also topped estimates.

2. Newer products are showing success and higher profitability

Looking under the hood, what was especially encouraging was that Intel did the best where it had just unveiled new products. That seemed to prove out Intel's technology and production ramp, the most important elements of its turnaround.

Specifically, while the company's core Client segment declined sequentially from $7.4 billion to $7.3 billion, there was a lot going on under the hood. Older Raptor Lake desktop products built on the older Intel 7 process waned, but notebook PC sales, bolstered by the early September introduction of Intel's new Lunar Lake chip, increased quarter over quarter. And operating profit for the client segment increased substantially despite the top-line decline, indicating newer notebook products built on the latest technologies are much more profitable.

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