What To Expect From Intel’s Q2 Earnings?

Intel stock (NASDAQ
NDAQ
: INTC) is expected to publish its Q2 2023 results later this week. We expect revenue for the quarter to come in at about $12.2 billion, marginally ahead of consensus estimates. This would mark a decline of about 21% versus last year, although things are likely to improve on a sequential basis. We expect the company to post a small net loss of $0.03 per share, slightly narrower than consensus estimates. See our analysis of Intel Earnings Preview for a closer look at what to expect when Intel
INTC
publishes its Q2 results.

Intel’s performance has been tough in recent quarters as the PC industry is in the midst of a slump, with the tailwinds such as remote working and learning seen through Covid-19 easing. Over Q1, sales of Intel’s Client Computing group declined 38% to $5.8 billion, as PC sales fell by 30% over the quarter. While we should see a year-over-year decline over Q2 as well, there could be some respite on a sequential basis. Counterpoint estimates that PC shipments fell by about 15% year-over-year in Q2 2023, although shipments did see a sequential improvement of 8% versus Q1. Moreover, while PC vendors worked through chip inventory that they built up over last year in Q1, things could get better in Q2 as inventory levels likely come down. Separately, we expect Intel’s data center business to continue to face headwinds as demand from cloud computing and enterprise space remains mixed. Intel has also been losing share to rival AMD whose Genoa server chips offer a better price-to-performance tradeoff versus Intel’s current server processors.

While Intel stock could move a bit higher if its beats earnings estimates, we think the stock is slightly overvalued at current levels. Intel stock remains up by over 25% year-to-date and also trades at about 20x consensus 2024 earnings, which we think is a relatively rich valuation given the multiple uncertainties that Intel faces. Besides the slow PC market and competitive threats to Intel’s data center business, Intel is now betting heavily on becoming a foundry player, producing chips for other semiconductor companies, and taking on the likes of TSMC and Samsung Electronics. It remains to be seen whether this capital-intensive bet will pay off, especially considering Intel’s recent struggles with updating its chips to the latest process nodes. We value Intel stock at $31 per share, which is about 10% below the current market price. See our analysis of Intel Valuation for more details on what’s driving our price estimate for Intel.

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