Wall Street is expecting a strong earnings report from Intel. Why it might not stop the stock's decline

Intel will release its second-quarter earnings report on July 23 after the market closes in New York. Wall Street expects double-digit revenue growth and a return to profitability for the company, but even results that exceed forecasts may not halt the July decline in its stock price. Investors have lost enthusiasm for chipmakers, and Intel’s stock price had been rising much faster than its business was improving prior to the sell-off.

The market expects Intel to report a 12% increase in quarterly revenue to $14.4 billion and earnings of $0.12 per share, compared with a loss of $0.67 a year earlier, according to Bloomberg. Intel’s gross margin is forecast to increase from 30% to 39%. However, this is below the level seen in the first quarter, when the margin was bolstered by one-time revenue from the sale of partially damaged chip inventory, notes MarketWatch.

The main source of growth is the server segment. FactSet’s consensus forecast suggests that the data center and artificial intelligence businesses—which include server processors—will generate 37.8% more revenue for the company, totaling $5.4 billion, according to MarketWatch.

The weak spot is personal computers. High demand for server processors and rising memory chip prices have reduced both PC production and shipments. The market expects the Client Computing Group, which is responsible for PC processors, to generate $8 billion in revenue—a year-over-year increase of just 1.7%, according to MarketWatch.

Intel’s outlook for its PC business “may leave something to be desired,” warned Bernstein analyst Stacey Rasgon. According to him, this disappointment could be offset by strong results in the server processor segment and Intel’s announcements regarding its success in developing its own chip manufacturing capabilities.

RBC Capital Markets analyst Srinith Pajuri expects Intel to report improved performance in its custom chip business—especially following April’s announcement of a partnership with Elon Musk’s Terafab project.

News of a deal with Apple or confirmation of the company’s plans to participate in Terafab could boost the stock price, according to Kim Forrest, founder and chief investment officer of Bokeh Capital Partners. “If statements continue to indicate that projects are proceeding according to the original schedule, I think the stock will react positively in the short term,” Bloomberg quotes her as saying.

Intel is set to report its quarterly results following a reversal that occurred without any direct link to its business performance: against the backdrop of a general decline in interest in chipmakers, investors began taking profits. In the first half of the year, the stock soared 278%—the third-best performance in the S&P 500—but in July, it plummeted 27% and ended up among the index’s ten worst-performing stocks. But even after the crash, Intel is on track for its best annual performance in its history, according to Bloomberg.

The reaction to the earnings report from TSMC—Nvidia’s main chip supplier—shows just how demanding investors have become, according to Bloomberg. A week ago, the Taiwanese giant raised its full-year revenue and capital expenditure forecasts, signaling confidence in demand for chips and data centers in 2027 and beyond, yet its stock price still fell.

“Investors’ attitudes toward the semiconductor sector will have a greater impact on Intel’s stock performance than the company’s own statements,” says Matt Bryson, an analyst at Wedbush Securities. He agrees that the July drop in the stock price is due more to a shift in investor sentiment than to any “real changes in Intel’s ability to generate earnings.”

Current share prices are significantly below record highs, but Intel has little room for growth—the stock still looks too expensive, notes Bloomberg. The P/E ratio, calculated based on the company’s expected earnings for the next 12 months, stands at about 74, compared to a ten-year average of 22. This is the third-highest multiple in the PHLX Semiconductor Index, and it is incomparable to those of its competitors: Nvidia’s P/E ratio is less than 20, and Broadcom’s is 23.

"It's not that Intel hasn't improved," concludes Bryson of Wedbush. "It's just that it hasn't improved at the same pace as its stock price has risen."

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