Intel’s stocks experienced a remarkable upswing of approximately 7% on Friday, following the chipmaker’s unexpectedly robust quarterly report. The company’s financials revealed a promising shift in their fortunes after grappling with reduced profits due to declining PC sales and intense competition within the data center market.
The second-quarter results came as a pleasant surprise, displaying a profit that pointed to the potential end of the personal computer market slump. This positive development triggered a surge not only in Intel’s stock but also across the entire chip sector.
At its current price of $37 per share, Intel is positioned to augment its market value by about $10 billion, surpassing Wall Street’s median target of $35. This optimistic outlook is supported by at least 21 brokerages that have elevated their price targets for the company, as per Refinitiv data.
“Forrester’s research director, Glenn O’Donnell, expressed, “Intel is finally undergoing a turnaround,” foreseeing a promising future not only for Intel but also for most other chipmakers.
In the wake of Intel’s encouraging results, Advanced Micro Devices and Nvidia witnessed increases in their stock values by 3.2% and 2.3% respectively, while Qualcomm experienced a 2.6% advancement.
Despite its prominent position in the American chip industry, Intel has fallen behind competitors such as Taiwan’s TSMC and Nvidia, both in terms of profit margins and overall market value. The downturn in the PC market and the fierce competition within the data center market severely impacted the company’s business.
Though Intel’s shares have seen a 30% rally this year, recovering from a challenging 2022, they pale in comparison to the astounding three-fold rise in Nvidia’s stock value. Nvidia achieved the momentous feat of becoming the first chipmaker with a trillion-dollar market value in May, largely due to its exceptional performance in the booming artificial intelligence (AI) market.
Regrettably, Intel missed out on this lucrative AI market due to its limited presence in graphics-processing units and other AI-specialist chips, which are crucial for AI technology, including that which powers ChatGPT.
Other chipmakers, like Samsung, have also released earnings reports showing an end to the glut in the smartphone and PC markets. However, the outlook for demand from customers outside the AI industry remains gloomy.
Intel’s AI and data center business witnessed a contraction of 15% in the recent quarter. CEO Pat Gelsinger mentioned that a surplus in the server central processing units market would persist until the second half of the year.
However, he expressed optimism by stating that Intel has secured sufficient customer orders to sell at least $1 billion worth of its AI chips through 2024.
Yet, despite these developments, analysts at Rosenblatt Securities are not convinced that AI is an attractive investment theme for Intel at the moment.
When comparing valuation metrics, Intel boasts a 12-month forward price-to-earnings ratio of 31.10, whereas Nvidia’s ratio stands at 43.26, with the industry median at 19.95.