To The Moon

After the US stock market closed yesterday, semiconductor giant $Intel(INTC)$ collapsed, its share price plummeted 10.9% :

On the news, Intel released fourth-quarter report, which exceeded market expectations in terms of revenue and net profits, but the guidance for the first quarter of this year was poor, causing the stock price to plummet:

Why did this earnings report make Wall Street nervous?

Specifically, Intel performed well in the fourth quarter of last year, with revenue of $15.4 billion, an increase of 9.7%, approaching the upper limit of management's guidance of $14.6-15.6 billion:

By business, Intel's traditional client business generated revenue of $8.844 billion, an increase of 33.1%; Data center business revenue of $3.985 billion, down 9.8%; Network and Edge business revenue of $1.47 billion, down 23.7% year on year; Autonomous driving Mobileye revenue of $637 million, up 12.7% year over year; Foundry business revenue of $290 million, an increase of 63.5% :

For Intel, there are two important businesses: the client business and the data center business. The former is related to PC sales, and the revenue growth in the fourth quarter last year was mainly due to the normalization of PC vendors' inventories and the low base in the fourth quarter of 2022, making the year-on-year growth rate look relatively high but only returning to normal levels.

Management expects PC shipments to grow by a low single digit in 2024, and expects AI PC shipments to reach around 40 million units.

Overall, the PC business is in recovery mode and is not a significant problem. With more vendors launching AI PCs, Intel is expected to continue its recovery trend with the help of industry tailwinds.

The market is worried about the data center business, which has more potential than the client business. However, with competition from $NVIDIA Corp(NVDA)$ and $Advanced Micro Devices(AMD)$ , Intel has been losing ground in this business. The revenue growth in the fourth quarter last year was relatively weak. As for Intel's AI GPU, it seems that it has not yet generated meaningful revenue.

Against this backdrop, Intel expects revenue in the first quarter of 2024 to be between $12.2 billion and $13.2 billion, with a median growth rate of 8.4%, significantly lower than analysts' expectations of $14.25 billion, which is the main reason for the stock's collapse:

However, I feel that market expectations are somewhat optimistic, and coupled with Intel's valuation being at a historical high, any slightly disappointing results can trigger a large sell-off:

Therefore, the plunge in Intel's stock price yesterday was mainly due to valuation issues. Once the stock price corrects and the valuation returns to a reasonable level, Intel may still be able to continue its recovery trend.

The driving force behind Intel's recovery mainly comes from the company's IDM2.0 strategy. Although IDM models faced challenges in the 21st century, such as being overtaken by pure foundry models like $Taiwan Semiconductor Manufacturing(TSM)$ , $Samsung Electronics Co., Ltd.(SSNLF)$ is also an IDM model, and both Intel and Samsung were overtaken by TSM. This highlights the flaws in their business models.

However, Intel's IDM2.0 strategy has made progress. The company has stated that its 4-year, 5-node strategy is on track, and advanced manufacturing processes have received advance orders from major chip designers. If this can be achieved as management has promised, Intel's foundry business will become a new growth driver, and its client and data center businesses may also regain competitiveness with advanced manufacturing processes.

In general, Intel's fourth-quarter report was excellent, but the stock's collapse was mainly due to market expectations being too optimistic and Intel's valuation being at a high level. After the correction, there may still be opportunities!