Intel: How Far Can the Relief Rally Go?

Shares of Intel (NASDAQ:INTC) staged their biggest daily jump on Wednesday after the chipmaker announced it would launch new server products sooner than initially expected.

The company’s shares closed up 7.6% following the announcement and are trading further higher in Thursday’s trading session.

Intel also plans to adopt a more sophisticated production technique and build a chip with more computing cores, making it faster than analysts’ estimates, Intel’s Executive Vice President Sandra Rivera said during a webcast for investors.

Finally Some Good News From the Embattled Company

The company’s management said Intel has already begun sending samples of a chip known as Sierra Forest to customers, with plans to start shipping the product in the first half of 2024. Geared for cloud-computing workloads, the chip has a whopping 144 processing cores.

This technology refers to a semiconductor manufacturing process that uses an 18-nanometer node size, allowing for smaller and more power-efficient electronic components to be produced.

Christopher Rolland, an analyst at Susquehanna Financial Group, said Intel’s early transition to the so-called 18A process technology represents a huge positive. The move comes as Intel CEO Pat Gelsinger ramps up efforts to recover the company’s market share losses by restoring its dominance in the server space, one of the most profitable areas of Intel’s business.

Under previous leadership, Intel lost significant ground to archrival Advanced Advanced Micro Devices (NASDAQ:AMD). In addition, some of the company’s customers including Amazon’s AWS built their own alternatives to Intel’s chips, further weighing on the chipmaker’s market share, revenue, and profit.

“The event provided a positive overview/update on Intel's datacenter roadmap, most notably Sierra Forest (ecore) & Granite Rapids (p-core) Xeon-SP on track for 2024 launches,” Wells Fargo (NYSE:WFC) analysts said.

A Massive PC Downturn

Analyst reports from earlier this year showed that AMD has captured almost a third of the central processor unit (CPU) market in the fourth quarter of 2022. However, Intel still holds the biggest market portion for the x86 processors, which work with mainstream operating systems such as Windows.

In Q4 2022, Intel held 68.7% of this market, while AMD held 31.3%, up from 28.5% in the year-ago period. Meanwhile, the growth of the UK chipmaker Arm in the PC market slowed during the quarter, the analyst report by Mercury Research showed.

The results were part of what Mercury President Dean McCarron described as the worst downturn in the PC chip market since the 1980s, and potentially the worst in the industry’s history. The slump came as consumers and businesses slowed their hardware purchases amid record-high inflation and economic uncertainty after going on a buying spree during the coronavirus pandemic.

Still, the downturn affected Intel and AMD in a different manner. The maker of powerful Ryzen CPUs exceeded consensus estimates in Q4 for sales, while Intel said it has “stumbled” in competing with its rival, forcing the chipmaker to impose broad pay reductions due to expected losses.

Until recently, Intel stock has continued tumbling this year after a challenging 2022 amid concerns that a weak outlook for chips would continue to worsen.

New Initiatives to Convince Investors

Intel took measures to prepare for a broad downturn, including slashing its dividend by as much as 66%.

“Prudent allocation of our owners’ capital is important to enable our IDM 2.0 strategy and sustain our momentum as we rebuild our execution engine,” Gelsinger said during the dividend cut announcement in February. IDM 2.0 refers to the upcoming phase of Intel’s integrated device manufacturing model.

Following the announcement and another stock selloff, Mr. Gelsinger bought 9,700 Intel shares for $250,000, at an average price of $25.68 per share, less than what he paid when he purchased the stock on the open market in January. Back then, Gelsinger paid $250,000 for 9,000 shares, representing an average price of $27.83 apiece.

According to a filing with the Securities and Exchange Commission (SEC), Intel's CEO bought the stock through a family trust that now holds 18,700 INTC shares. Gelsinger also holds 52,798 shares in his personal account and an additional 361,099 shares through other trusts.

“Pat’s purchase reflects his confidence in Intel’s long-term strategy and transformation,” the company said.

Horrible Q4 Results

The company’s stock saw a poor start to the year after the chipmaker reported disappointing quarterly and full-year financial results for Q4 2022. In terms of the business’s fundamentals, Intel reported a net loss of $664 million and a year-over-year revenue decline of 32%, significantly missing consensus projections.

Following a myriad of challenges including swollen chip inventory and tepid demand, Intel said it expects an adjusted net loss of 15 cents per share for Q1 2023, prompting analysts to slash INTC price targets across the board.

"No words can portray or explain the historic collapse of Intel, with management attempting to blame a worst-ever PC inventory digestion dynamic and macro/China/enterprise to an over 20% q/q decline in sales," Rosenblatt analyst Hans Mosesmann said in a January note.

The investment firm maintained its sell rating on INTC and trimmed the stock’s price target to $17 from $20.

KeyBanc’s John Vinh had a similar view. “We await further proof points on its ability to close the performance gap and regain market share versus AMD,” KeyBanc’s John Vinh wrote in a note.

Summary

Intel shares are trading higher this week after the embattled chipmaker issued positive updates pertaining to its product roadmap. The INTC stock has notably recovered recently on improving sentiment around the company and following a very weak set of Q4 results presented in January, as well as a huge dividend cut announced in February.

Overall, Intel stock trades 19.2% higher in 2023.

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Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.