Intel shares surged 7 per cent on Friday (Jul 28), a day after the chipmaker’s unexpectedly strong quarterly report heralded a turnaround in fortunes after a long, margin-sapping struggle due to plummeting PC sales and a highly competitive data centre market.
The company’s surprise second-quarter profit and its strong earnings and margin forecasts suggested the personal computer market slump was nearing an end, sparking the surge in its stock and the wider chip sector.
Intel is poised to add about US$10 billion to its market value, based on its current premarket price of US$37. That is already 6 per cent higher than Wall Street’s median target of US$35 after at least 17 brokerages raised their price targets on the stock.
“Intel’s turnaround is finally happening,” said Glenn O’Donnell, research director at Forrester.
He also expects “far better quarters ahead for Intel and most other chipmakers.”
Intel’s results lifted Advanced Micro Devices and Nvidia by 2.3 per cent and 1.5 per cent, respectively, while Qualcomm rose 1.5 per cent.
A titan of the American chip industry, Intel has fallen behind rivals such as Taiwan’s TMSC and Nvidia both in terms of margins and market value as the PC market downturn and stiff competition in the data centre market battered its business.
While Intel’s shares have rallied 30 per cent this year after a tough 2022, that has paled in comparison to the more than three-fold rise in Nvidia, which became the first chipmaker with a trillion-dollar market value in May after its own “historic” forecast.
However, that was largely due to the booming artificial intelligence (AI) market, which Intel has missed out on because of its small presence in graphics-processing units and other AI specialist chips that enable the technology behind ChatGPT.
Indeed, Intel’s AI and data centres business contracted 15 per cent in the recent quarter, and CEO Pat Gelsinger said a glut in the server central processing units (CPU) market will persist until the second half of the year.
He added that Intel now has enough customer orders to sell at least US$1 billion worth of its AI chips through 2024.
Nonetheless, analysts at Rosenblatt Securities “don’t see AI as an investable theme for Intel currently”.
Intel has a 12-month forward price-to-earnings ratio of 31.10, compared with Nvidia’s 43.26 and an industry median of 19.95.