Stocks saw a boost on Friday, mostly due to a drop in inflation figures for September. This was particularly evident with Intel, which posted encouraging third-quarter results just a day earlier, hinting that a turnaround might be on the horizon.
Intel shares reached a one-year high of $41 during Friday’s trading, marking a significant recovery from its low of $17 over the past 52 weeks.
The positive Consumer Price Index (CPI) data could also pave the way for the U.S. Federal Reserve to consider additional interest rate cuts. This could greatly benefit Intel and its peers in the semiconductor industry. So, is it the right time to invest in Intel, or should we be cautious about INTC’s surge?
The third quarter signaled Intel’s return to profitability, at least for now
Intel bounced back with third-quarter net earnings of $4.06 billion, translating to $0.23 per share, after posting a loss of $16.64 billion, or -$0.43 per share during the same quarter last year. The stock’s initial climb was fueled by Intel surpassing EPS estimates by a narrow margin.
However, it’s essential to note that these profits were largely driven by one-time gains. This includes the sale of a majority share in its programmable chip division, Altera, along with various tax incentives and accounting adjustments related to restructuring and asset sales.
Intel did manage to record positive adjusted earnings per share in the last quarter of the previous year and the first quarter of 2025; still, its net income for these quarters was -$129 million and -$887 million respectively.
Intel’s main growth drivers
Intel’s CEO, Lip Vu Tan, pointed to improved efficiency as a key to recent success, highlighting better business practices and focused strategy, especially in manufacturing and research and development. Interestingly, lower interest rates tend to benefit high-tech firms by reducing costs associated with capital, R&D, and expansion efforts.
On the AI front, Intel is gaining traction with products like dedicated application-specific integrated circuit (ASIC) chips and AI PCs. Their Data Center and AI (DCAI) division saw revenues increase by 5% year-over-year, reaching $4.1 billion. Overall, third-quarter sales climbed 3% to $13.65 billion, surpassing expectations of $13.11 billion.
Partnerships are also playing a significant role in boosting Intel’s prospects, particularly following a $5 billion investment from Nvidia and another $2 billion from Softbank. Presently, Intel seems to have adequate cash for capital investments, but a potential rate cut might be beneficial if more financing is needed later. Notably, the U.S. government turning over $11.1 billion in CHIPS Act grants into equity made it Intel’s largest single shareholder, which notably shifted investor sentiment.
Intel Guidance and Outlook
Intel forecasts fourth-quarter revenues to be between $12.8 billion and $13.8 billion, lining up with the Zacks Consensus Estimate of $13.37 billion. They also predict an EPS of $0.08, consistent with consensus expectations. Additionally, fourth-quarter gross margins are expected to hover around 36.5%, with total yearly capital investments at around $18 billion.
After the deconsolidation of Altera, Intel adjusted its full-year operating expense outlook down from $17.0 billion to $16.8 billion.
Zacks estimates suggest Intel’s total revenue could dip by 2% in fiscal 2025 but may recover with a 3% increase in fiscal 2026, reaching $53.76 billion. For fiscal 2025, EPS is anticipated to shift to $0.12 per share, following last year’s adjusted loss of $0.13. Hopefully, by fiscal 2026, EPS may rise to $0.64, but that’s still well below Intel’s historical earning levels.
Summary and final thoughts
At first glance, Intel’s “strong” Q3 results might seem promising for a recovery; however, the reality is a bit more complicated. The semiconductor giant’s return to profitability appears heavily reliant on the sale of Altera, rather than on its main business activities. That said, interest rate cuts and equity investments from major players paint a somewhat optimistic picture, especially with the recent growth in AI and stricter cost management.
This optimistic outlook suggests it may be premature to temper any enthusiasm for INTC’s resurgence, but significant upward revisions to EPS will likely be critical in fiscal 2026 to cement a buy rating. Right now, Intel stock holds a Zacks Rank #3 (Hold).
