Key points
- Intel reported an excellent fourth quarter, but the outlook for the first quarter has analysts resetting their targets.
- Growth and margins are expected to improve, but less in the first quarter than previously forecast, and strength will not appear until later in the year.
- Intel’s stock price is at a critical inflection point that could lead to range-bound trading in 2024.
- 5 titles we prefer to those of Intel
Intel’s NASDAQ: INTC Fourth quarter results and first quarter forecasts were mixed to say the least, providing ample reason for a market sell-off, but the depth of the correction may have already been probed. The conclusion drawn from the results and the resulting activity of the analysts is that the prospects have been reset.
Intel is still on track to grow, and its turnaround and growth efforts are gaining traction, but the outlook is muted and weighing heavily on price action. This poses a risk to Intel investors today, but there is a more significant risk to the technology sector and the stock market in general. The risk is that the quality of Intel’s guidance becomes a trend across the tech sector, leading many of the current market leaders into a similar correction.
Intel has strong Q4, weak guidance for Q1
Intel’s fourth quarter results were solid and continued the trend established earlier in the year. CEO Patrick Gelsinger’s efforts are driving this blue-chip technology into a breakthrough that is gaining traction. The company has posted top-line and bottom-line growth above consensus efforts thanks to its diversified business. The Data Center, Network and Edge segments are down year-over-year, which is concerning due to potential stock losses from NVIDIA and AMD, but offset by strength from Client Computing, Mobileye and Intel Foundry Services. These segments increased by 33%, 13% and 63% respectively.
Margin is another area of Intel’s strength. Cost-cutting efforts reduced spending by $3 billion to achieve significant profit outperformance. Both gross and operating margin contracted versus prior, but much less than expected, leaving adjusted earnings at $0.54, $0.09 and 20% better than the analyst consensus reported by Marketbeat.com.
Cost savings are expected to carry over into the current year and be compounded by revenue leverage throughout the year. However, first-quarter forecasts were below consensus, leading analysts to revise their expectations. Revenue target of $12.2 billion to $13.2 billion is up 8.5% at the midpoint and may be cautious but still well below consensus of $14.15 with similar weakness in the outlook of profits. The company expects to reverse last year’s losses and improve sequentially. However, the first-quarter target is less than half of what analysts expected and is not a catalyst for a market rally.
Companies with inflated and inflationary expectations for CQ4 and C2024 results include NVIDIA NASDAQ:NVDA, Meta platforms NASDAQ: META, Alphabet NASDAQ:GOOGAND Microsoft NASDAQ: MSFT.
Analysts reset sentiment for Intel: sentiment weakens but still remains favorable for this market
Analyst activity following Intel’s fourth-quarter release is as mixed as the company’s results, but not bearish for the market. The ten revisions tracked by Marketbeat.com include seven reduced price targets, one downgrade to Hold and two upgraded price targets, including the new high target, and only one revision is below consensus. This could continue to catalyze volatility in the market, but should not take it too far lower, with the consensus just 5% below Friday’s closing price and still above the critical moving averages.
Among the long-term drivers for this stock is its shift towards foundry services. Onshoring and demand for advanced foundry technology are expected to be significant drivers for Intel’s Foundry Services segment, aided by billions in federal grants. The caveat is that big gains aren’t expected until later this year or 2025.
The technical outlook: Range-bound Intel is at a critical inflection point
The Intel stock price chart does not so much suggest a downtrend as it suggests trading within a range. Over the past two years, the stock has bottomed, hit a high, and is now testing support at the midpoint. The midpoint is a critical pivot for technical traders and market activity and, if exceeded, can cause a deeper rebound or collapse. A move towards the lower end of the range should be expected if the market fails to hold support above the midpoint and then confirms resistance below it. Until then, a drop below the midpoint represents a potential buying opportunity that this market may not miss.
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