After years of pain for Intel Corp. investors, the company's business finally seems to be coming off a bottom, but earnings will show if the company is again poised to be left behind as the artificial-intelligence era takes hold.
The company reported its biggest quarterly loss ever last earnings season, but it's expected to find strength in its battered PC business when it posts results Thursday after the market close. Still, analysts have new concerns as they seek to deduce just how much Intel $(INTC)$ can benefit from the wave of interest in AI, where rivals Nvidia Corp. $(NVDA)$ and Advanced Micro Devices Inc. $(AMD)$ are dominating.
On the company's last earnings call, Intel Chief Executive Pat Gelsinger pointed to an improving data-center business, but in light of the chip giant's steep quarterly loss and years-long string of disappointments, analysts weren't sure how much stock to place in that estimate.
When Intel reports results for its June-ended quarter after Thursday's close, they'll be looking for signs that the company's business has reached a bottom.
Within the data-center business, Evercore ISI analyst C.J. Muse suspects that Intel's March quarter will prove its low point, "though our confidence in a recovery here today is not terribly high given allocation of hyperscale spending towards acceleration infrastructure," he said.
In other words, there's risk that big cloud customers could be putting more of their budgets toward products that help with AI training, and Intel isn't nearly as well positioned for this trend as Nvidia and AMD, both of which released new AI products this past year.
Nonetheless, he expects "a slight beat and raise" on the whole from Intel, following commentary that the June-ending quarter was tracking toward the upper end of the forecast. Muse, who has an in-line rating on Intel, anticipates a strong showing from the PC business "as customer inventory is fully digested exiting" the second quarter and as Intel "begins shipping to end-demand in the back half of the year."
Mizuho analyst Vijay Rakesh, who has a neutral rating and a $33 price target, said Intel "could see some incremental revenue from the AI revolution," but versus Nvidia and AMD, he said, growth will be "more muted."
Susquehanna Financial analyst Christopher Rolland, with a neutral rating and $35 price target, expects Intel "to post a modest beat and raise," but said "the longer-term sustainability of this momentum has yet to be determined."
"AI remains a mixed story for Intel," Rolland said, explaining that while the company may sell some AI chips in the near term, central processing unit budgets, where Intel is looking for a revival, "moving forward may be constrained to make room for AI [graphics processing units]."
"Additionally, AMD's Genoa is taking additional share in [the second half], albeit slower than we had expected," Rolland said. "Longer term, we remain cautious on Intel's server competitiveness for the next several years."
Intel also isn't offering much hope in terms of gross margin relief. "[A]s it looks to make up ground with new node ramps and invests heavily in its foundry strategy, [gross margins] are likely to be compressed for the foreseeable future," Mizuho's Rakesh added.
In late June, Intel earned the dubious distinction of being the worst stock on the Dow Jones Industrial Average for two days in a row after the chip maker outlined its strategy for its third-party fab business, which is meant to compete with the likes of Taiwan Semiconductor Manufacturing Co. (2330.TW) but has yet to name a major customer.
For its part, TSMC fell under pressure last week after the company said its gross margin contracted and is expected to weaken further.
Read:Why Intel was the Dow's worst performer for a second day in a row
Intel operates its own foundries, or fabs -- high-tech plants that create the silicon wafers onto which transistors are etched to make microchips. Other chip makers like Nvidia, AMD, Qualcomm Inc. $(QCOM)$ and Apple Inc. $(AAPL)$ are "fabless" and use third-party fabs like TSMC for their chips.
Analysts surveyed by FactSet expect Intel to report an adjusted loss of 4 cents a share for the second quarter on revenue of $12.12 billion.
