Is Intel Stock a Buy After Its Post-Earnings Plunge?
The chipmaker's data center business just saw its fastest growth in 15 years. Why did shares fall?
Intel's stock fell around 23% in after-hours trading on Thursday, Oct. 29, following the release of its third-quarter earnings. Despite a strong quarter with 21% year-over-year revenue growth to $16.5 billion and non-GAAP earnings per share of $0.52, exceeding expectations, the outlook was bleak. Intel projected fourth-quarter revenue between $15.0 billion and $16.0 billion, and adjusted earnings per share of $0.25, less than half of what it had previously reported.
The server business, specifically the data center and AI segment, showed impressive growth with a 78% year-over-year increase to $7.3 billion. However, the client computing and physical AI group experienced a decline of 5%, primarily attributed to higher memory prices and tight IT budgets. Intel anticipates a further 20% drop in PC segment revenue for the next quarter as PC makers draw down their inventory.
The company's outlook also factors in a recent production disruption at its Fab 28 plant in Israel, which is expected to reduce fourth-quarter revenue by around $300 million and gross margin by 2 percentage points. Intel's adjusted gross margin for the fourth quarter is now projected at 38%, down from 44.1% in the third quarter due to a smaller revenue base.
While the stock trades at about 33 times the projected 2027 earnings, which is down from 43, Intel remains optimistic about long-term growth in the data center and AI segment. However, the short-term outlook for PC sales remains a concern, with management not expecting a lasting recovery until memory supply improves and prices normalize. At its current price, Intel stock may not be considered a buy after the recent plunge.
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