Intel Corp.: A Pivotal Year Ahead

Intel Corp. is gearing up for a pivotal year, and investors are eagerly anticipating its upcoming report to gain further insight into what lies ahead for the chip company.

Recovering from its lows, Intel is expected to demonstrate significant progress in its Thursday afternoon report. Adjusted earnings per share could soar by over 300% compared to the previous year, while revenue is projected to grow by a notable 8%.

However, despite these positive indicators, Intel still faces a number of uncertainties that are worth considering. The company is currently preparing to relaunch its foundry business and is making a strategic push to capitalize on the growing demand for artificial intelligence. Analyst Stacy Rasgon from Bernstein recently described this as a "make-or-break year for Intel, with a lot of events, moving pieces, and change on the horizon."

One crucial development is that Intel will start disclosing the financials of its manufacturing business starting in the first quarter. Additionally, the company aims to reduce its cost of goods sold by at least $5 billion through 2025 due to the challenging economics of this sector. However, the timing of these cuts remains uncertain.

Within Intel's core business, there are areas that are up for debate. For instance, the PC market has shown signs of recovery compared to pre-pandemic levels. Nonetheless, analysts like Rasgon are closely monitoring data points such as fourth-quarter shipments for any potential weaknesses.

Moreover, the success of Intel ultimately hinges on its ability to execute its process roadmap effectively. Investors are keen to see if the management can maintain momentum on this front. Additionally, there is a question of whether it will make a significant impact even if they do. Rasgon raises these critical points in his analysis.

As investors eagerly await Intel's upcoming earnings call, they anticipate gaining new insights into the management's expectations for the company's various puzzle pieces. However, it remains uncertain whether executives will provide an annual forecast during the call.

Intel's Stock Performance

Intel's stock has seen a significant underperformance over the past five years. While the S&P 500 and the PHLX Semiconductor Index have experienced substantial gains of 84% and 272% respectively, Intel's stock has remained nearly flat during this period. However, there has been a recent rally, with the stock surging by 44% in the past three months. This rally has outperformed both the S&P 500 (up 15%) and the PHLX Semiconductor Index (up 34%).

According to UBS analyst Timothy Arcuri, despite the recent rally, the current setup doesn't bode well for Intel's stock.

Uncertainty Surrounding AI-Hardware Spending

Part of Intel's recent stock surge is attributed to optimism regarding the company's ability to benefit from AI-hardware spending. The extent to which this narrative will unfold remains uncertain.

"We remain focused on Intel's potential to increase its presence in the rapidly growing data-center AI market with their upcoming Gaudi3 AI processor," commented Wells Fargo's Aaron Rakers. He further anticipates that Intel will reaffirm its plans to launch Gaudi3 in early 2024 and highlight its growing pipeline, which would be an added advantage.

The Potential of the AI PC Market

Raymond James analyst Srini Pajjuri is particularly intrigued by Intel's commentary on the nascent AI PC market. He believes that this emerging market offers incremental opportunities, especially with the adoption of applications like MSFT Copilot.

In conclusion, while Intel's stock performance has been lackluster over the past five years, recent gains have sparked interest. The company's potential in the AI-hardware and AI PC markets could play a crucial role in determining its future success.