Semiconductor giants Intel (INTC.US) and AMD (AMD.US) will report their third-quarter results on October 29 and November 3, respectively.
Bernstein's latest research note pointed out that the semiconductor market is currently showing extreme polarization: the traditional PC market is suffering its worst downturn in decades, but strong demand for servers and AI is enough to offset this gloom.
Bernstein maintained its "market perform" rating on Intel with a price target of $110, and maintained its "outperform" rating on AMD with a price target of $650.
Meanwhile, Wedbush released a preview report on Intel, offering the market a different valuation perspective. The firm maintained its "neutral" rating and $98 price target on Intel.
The following is a summary of the core points from the research reports of both institutions:
Macro Headwinds: PC Market Suffers an "Epic" Winter
The Bernstein research note pointed out that, hit directly by tight memory supply and soaring prices, the PC market is undergoing severe contraction.
Shipments plunged: according to IDC and Gartner data, global Q3 PC shipments fell sharply year over year by 20% to 22% (far worse than Q2's mid-single-digit decline), and also fell 9% to 14% quarter over quarter. This was the worst Q3 sequential performance in more than 20 years.
ODMs under pressure: notebook ODMs in China's Taiwan region saw shipments decline year over year by 24%, 38% and 20% in July, August and September, respectively.
Abnormal inventory: Bernstein observed that second-quarter PC CPU shipments were 10.5% higher than PC finished-goods shipments (versus -2% in the first quarter), indicating obvious inventory buildup across the industry supply chain, with high memory prices materially damaging end demand.
Intel: Institutions Diverge on Expectations, Guidance More Critical Than Quarterly Results
Intel will release earnings on October 29. Bernstein significantly cut its PC business forecasts for Q4 and next year, but this loss was offset by expected growth in the server business.
Bernstein expects Intel's Q3 revenue to be $16.6 billion and earnings per share (EPS) to be $0.49, above market expectations of $16.5 billion/$0.40; it expects Q4 revenue of $16.4 billion and EPS of $0.41, below market expectations of $17.1 billion/$0.43, mainly due to weak PC expectations.
Bernstein outlined Intel's current "mixed bull-bear" situation: on the positive side, the server market remains strong in both volume and pricing. The research note pointed out that customers are currently "buying regardless of product performance," which is strongly supporting the company's results. In addition, the foundry business has also made progress: the 14A 0.9 PDK is about to launch, and activity in packaging and the Ohio plant is increasing, all of which are positives for the company's fundamentals.
On the negative side, the PC client segment still faces enormous headwinds. At the same time, the company's transition to new processes, as well as the ramp-up of new businesses (packaging, ASIC, etc.), may pressure margins next year. In addition, the research note expects its capital expenditure may continue to exceed expectations.
Given that Intel's stock price has fallen more than 30% over the past month, Wedbush analyst Matt Bryson believes downside risk has largely been digested, showing a "risk-reward becoming more balanced" posture. He believes that although Intel's Q3 results are likely to beat expectations, driven by improved server supply, the magnitude of the beat may be smaller than in the previous quarter because PC shipments fell about 20% year over year and memory and substrate costs rose. He stressed that Intel's stock price movement will depend more on management's guidance for the fourth quarter and incremental information on 2027 expectations (especially capital expenditure).
Wedbush expects Intel's fourth-quarter revenue guidance to reach $17.5 billion and EPS to be $0.49, slightly above market consensus.
AMD: Clearer Server Advantage, Focus on MI450 Capacity Ramp
AMD will release earnings on November 3. Bernstein made similar adjustments to its AMD forecasts (cutting PC, raising servers), but because AMD relies relatively less on the PC business, the revisions were smaller.
Bernstein expects AMD's Q3 revenue to be $13.1 billion and EPS to be $1.96, broadly in line with market expectations; it expects Q4 revenue of $15.9 billion and EPS of $2.56, slightly below market expectations of $16.3 billion/$2.67, dragged down by PC weakness.
Bernstein said AMD is better positioned than Intel in servers, with products customers truly want to buy. Management hinted that second-half server sales will grow more than 80% year over year, and Bernstein said it would not be surprised if they doubled. In addition, the ramp-up of the next-generation Venice architecture will bring strong growth.
The market is closely watching the launch pace of the MI450 AI GPU. Bernstein believes that if the company can smoothly achieve rack capacity ramp-up, Wall Street's current expectation of about $43 billion for 2027 AI GPUs is not aggressive. In addition, affected by the AI business ramp and memory/HBM price increases, Bernstein prudently expects next year's gross margin to be about 54%, slightly below Wall Street expectations.
AMD's stock price has recently weakened along with the sector, but it is still up 148% year to date, and Bernstein sees the recent pullback as a buying opportunity.
The "Fire and Ice" of Earnings: What Should Investors Watch Closely?
Whether it is Intel or AMD, the upcoming earnings reports will present a "fire and ice" situation. Combining the views of Bernstein and Wedbush, investors should focus on the following during the earnings calls: the extent to which high memory prices are damaging PC demand, the sustainability of high server growth, Intel's guidance for the fourth quarter and 2027 (especially capital expenditure), and the pace of AMD's MI450 capacity ramp and margin pressure.
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