"The stock's rise was driven by a dream": why Intel posted its worst drop in two years

Shares of Intel collapsed by 17% in trading on January 23, showing the strongest collapse in two years. Investors were disappointed by the forecast for the first quarter: the company greatly underestimated the demand for processors, and its production capacity was insufficient, analysts say. Excessive growth of chipmaker's securities before the report was caused by emotions, not by fundamental indicators, Wall Street is sure.

Intel's stock price was $45.09 at the close of trading on Friday. The price drop was the biggest single-day drop since 2024. The company's capitalization collapsed by more than $35 billion, and the value of the U.S. government's stake, which it acquired in the summer, fell by $2.4 billion, Barron's noted.

The stock fell after the chipmaker said it could not yet meet the high demand for processors for data centers, caused by the AI boom, due to a high proportion of defects in production. This disappointed investors who were encouraged by news that the company had launched production of processors using Intel's advanced 18A process technology, Reuters wrote.

Before Friday's collapse, Intel's stock had been rallying strongly for months, adding 47% in the three weeks before the report. But that rally was based "on sentiment and tweets," so the company's quarterly results "should have been flawless," Bernstein analyst Stacey Rasgon said in a MarketWatch story. Intel didn't live up to expectations.

"The stock's rise was largely driven by a 'dream' rather than reality or fundamentals," said analysts at TD Cowen, whose note was quoted by Reuters.

Even with its factories at full capacity, Intel has been unable to keep up with the volume of orders due to high scrap rates as they come off the assembly line. The company has "obviously grossly underestimated" demand, and its production capacity is at "an absolute loss," Rasgon added.

On Dec. 30, Forbes wrote that current analysts' estimates of yield are between 50% and 60%. This figure is crucial for chip production, as low yields are likely to have a negative impact on profitability and discourage Intel's potential customers for contract semiconductor production, Bloomberg explains.

"Clients won't enter into a contract unless they are confident that the manufacturing process can deliver," JoAnn Feeney, partner and portfolio manager at Advisors Capital Management, said in an interview with Bloomberg Television. - "If you choose a particular manufacturing partner, you have to be confident that they can deliver.

Intel CFO David Zinsner said he expects year-over-year yields to improve in the second quarter - after hitting bottom in the first. Analysts at Jefferies also believe the supply shortage will bottom out in March, while Oppenheimer expects the constraints to ease by next quarter, Reuters writes.

"Growth in the server market appears to be real, but the company has seriously miscalculated - its production capacity was completely unprepared for such demand," Bernstein analysts said.

Intel's weak first-quarter outlook was also negatively affected by a global decline in memory shipments: rising prices, analysts said, could cool demand in the end-market PC, the largest segment for Intel, where the new lineup of Panther Lake chips was expected to be a game changer after years of customer churn for AMD, Reuters wrote.

Expectations of announcements of new external customers for contract semiconductor manufacturing seriously fueled the stock rally ahead of the report, Reuters recalls. However, in a call with investors on Thursday, CEO Lip-Bu Tan clarified that so far only two customers are evaluating the technical specifications of Intel's 14A process, which has not even been launched yet. The company expects to make clearer decisions from potential customers in the second half of the year or the first half of 2027, Bloomberg writes.

Wedbush analyst Matt Bryson suggested that some of Intel's comments on its first-quarter outlook shouldn't have surprised investors, as management had hinted at possible difficulties in early 2026 as far back as three months ago. Still, expectations "got ahead of Intel's reality," Bryson wrote Friday in a note cited by MarketWatch. The analyst also notes that while the launch of Panther Lake processors - Intel's first chips built on the 18A process - was a positive development this month, he still struggles to see what long-term financial benefit it will bring to the chipmaker's business.

This article was AI-translated and verified by a human editor