Intel’s $250 Billion Rally Slams Into a Potential Earnings Wall

(Bloomberg) — Intel Corp. has been one of the hottest stocks in the market over the past 12 months, soaring 230% to the highest price since the dot-com bubble. But the rally is facing a potential roadblock in the company’s first-quarter earnings report due after the close Thursday.

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The shares have been on a roll since last year, spurred by the US government’s $8.9 billion investment in return for a stake in the once-struggling chipmaker. Since then, it has also paid $14 billion to buy back half of a plant in Ireland that it had previously sold to Apollo Global Management, joined Elon Musk’s semiconductor manufacturing project Terafab and received a commitment from Alphabet Inc.’s Google to use its processors.

These developments have offered investors encouraging signs about Intel’s turnaround under Chief Executive Officer Lip-Bu Tan. As a result, the stock is among the 20 best performers in the S&P 500 Index in the last year, soaring 63% since March 30 alone. Last week, it closed at $68.50, its highest level since September 2000. With the rally continuing Thursday, sending the stock up as much as 4.6%, the company’s market capitalization stands at around $340 billion — a year ago it was just $90 billion.

But the first-quarter earnings report could halt that momentum. Wall Street analysts expect Intel to post adjusted earnings per share of 1 cent, a 92% drop from a year ago, and a slight decline in revenue to $12.4 billion. Gross margins are projected to fall to less than 35% from 39% in the first quarter of 2025.

“I think financial strength may still take time,” said Hendi Susanto, a portfolio manager at Gabelli Funds, which holds Intel stock. “I still expect some volatility, including some potential pullback” in the shares.

One challenge for the investors seeking more gains from here is the rally has made Intel the most expensive chip stock in the market. It’s trading at about 94 times earnings expected over the next 12 months, the highest multiple in the Philadelphia semiconductor index. The next closest is Arm Holdings Plc at 93 times estimated earnings, while Nvidia Corp. is priced at around 22 times.

“Consensus is actually saying that these shares are expensive and that based on the current valuation, they’re expecting downside,” said Melissa Otto, head of technology, media and telecommunications research at Visible Alpha. “The company needs to come out with guidance and earnings that are meaningfully higher in order to essentially move beyond the current expectations of what is priced in.”

Wall Street is looking for more evidence of a recovery, particularly in its competitiveness in foundry services and chip design, according to Wedbush analyst Matt Bryson, who thinks Intel shares have “gotten ahead of reality.” He has a neutral rating on the stock and a $30 price target, which implies a 54% decline from Wednesday’s close.

“The change over the last three months seems less tied to definitive signs Intel’s execution has improved, but is rather due to tightening of available best-in-class manufacturing due to the continued accelerated growth of AI data centers,” he wrote in an April 20 note to clients.

Investors will be all ears on any discussion of new customers for Intel’s foundry business, which has been the source of speculation in recent weeks. Intel shares got a boost late Wednesday when Musk said Tesla plans to use the firm’s 14A chip production technology.

“They haven’t quite come out and said, ‘Hey we’ve won this major customer for foundry,’” said Jay Goldberg, a senior analyst at Seaport Group, who added that it’s “the most important thing for the company long term.”

Another focus will be comments on capacity constraints for central processing units, or CPUs, which drove part of Intel’s weaker-than-expected first-quarter revenue guidance in its previous report. The stock plunged 17% on Jan. 23, the day after the results, its worst drop since August 2024. And investors will want to hear guidance on gross margins, which are expected to recover in the second half.

Some stock market pros see upside for Intel in the server CPU business, which is “the key near-term catalyst to drive earnings upside and is still not priced in,” HSBC analysts led by Frank Lee wrote in an April 21 note. In an environment with high demand and supply constraints, Intel should be able to charge a premium for server CPUs, which would generate revenue growth, they said.

For the most part, however, Wall Street is skeptical that the stock will see more gains from here. The average 12-month price target from the 52 analysts tracked by Bloomberg who cover the company was $56.57 on Wednesday, which implies a more than 13% decline from where it closed.

“The quarter will be tough,” Seaport’s Goldberg said. “But I think they’ll be able to speak more positively on the outlook for the rest of the year.”

Tech Chart of the Day

The Philadelphia Stock Exchange Semiconductor Index rose 2.7% on Wednesday, its 16th straight positive session. That’s its longest such streak on record, based on data that goes back to 1994.