Since rumors emerged of a takeover by Qualcomm in 2024 and a substantial cash injection from the U.S. government, Intel has grown significantly. Now, “Chipzilla” is taking another massive hit on the stock market, with the company’s value plummeting by 20 percent. A shrinking PC market appears to be the culprit.
On paper, Intel performed well. Earnings per share came in at 52 cents, while Wall Street had expected 40 cents. Revenue rose 21 percent to $16.51 billion.
Nevertheless, investors were startled by the outlook. For the fourth quarter, Intel expects revenue of between $15 billion and $16 billion and earnings per share of approximately 25 cents. Analysts had projected $17.1 billion and 43 cents, respectively. After the market closed, the stock fell more than 22 percent, following a rise of over 150 percent since January. Following the first-quarter results earlier this year, the stock had surged by about 29 percent. However, the positive sentiment appears to have shifted, compounded by the disappointing forecasts.
PCs and data centers show mixed results
In any case, there is no positive news for Intel across the board. The Client Computing and Physical AI division saw revenue fall by 5 percent to $8.1 billion. Compared to the previous quarter, the decline was as much as 9 percent. Data Center and AI, on the other hand, grew by 78 percent to $7.3 billion. But that growth alone does not seem to be enough.
This weakness in the PC market has a clear cause that we’re seeing repeatedly across various vendors. Memory chips are extremely expensive, and other components are also scarce and pricey. Intel expects the global PC market to shrink by about 12 percent this year. CFO David Zinsner anticipates the slowdown will persist until at least the first half of 2027. That’s still an optimistic outlook: SK Hynix expects memory shortages, largely driven by companies like SK Hynix itself, to continue until at least 2030.
Agentic AI applications, however, appear to be providing Intel with a boost. AI agents run more efficiently on CPUs than chatbots, which primarily use GPUs from Nvidia and AMD. If latency isn’t a major concern, that workload is more cost-effective on CPUs than on GPUs or specialized AI chips. Intel estimates that the market for server CPUs could grow from approximately $40 billion to over $200 billion within five years.
Fatal accident and foundry concerns
Intel also faced a completely different setback this quarter. An explosion at an Intel fab in Israel killed two employees and seriously injured a third. The factory has been shut down for an extended period, delaying shipments of 10-nanometer chips. According to Zinsner, this will cost the company about $600 million in revenue over the next two quarters.
The foundry division is also struggling to gain traction: Intel itself remains the only major customer. CEO Lip-Bu Tan promises that Intel will announce “a few customers” in the next two quarters. He remained silent on talks with SK hynix regarding capacity at the Ohio fab.