At first glance, semiconductor-giant Intel (INTC 1.79%) did everything right in the first quarter of 2021. The company delivered earnings of $1.39 per share on sales of $18.6 billion, blowing past Wall Street's consensus estimates of $1.15 per share and $17.9 billion. The company also raised its full-year earnings outlook just above the analyst view, and Intel's revenue targets consistently landed slightly ahead of the Street.

Results like these typically send share prices skyward, but Intel's stock was down 7% in Friday's early market action. The bearish market makers had their reasons, of course. Here's why Intel shares dropped despite those mighty fine first-quarter results.

Two hands give thumbs-up and thumbs-down signs in front of several uncut semiconductor wafers.

Image source: Getty Images.

Soft guidance

First and foremost, Intel's guidance for the next quarter came in below expectations. Management sees second-quarter earnings stopping near $1.05 per share, which is below the Street's current consensus of $1.09 per share. That small slip-up is enough to spark a bearish attitude among the more short-sighted investors and analysts out there.

Trouble in paradise

Intel's first-quarter results were not uniformly impressive. Datacenter sales fell 20% year over year to $5.6 billion, suggesting that arch-rival Advanced Micro Devices (AMD 5.25%) may be stealing market share in this crucial sector. Any weakness here also opens the door for NVIDIA (NVDA 4.00%) to find a foothold with its recently announced data center processors.

This is a continuation of trends seen in recent quarters, but Intel bears can point to this weakness in support of their negative analyses of the company and its stock.

A red arrow follows a bar chart lower, bouncing upward from the chart's bottom.

Image source: Getty Images.

Why I'm not worried

As an Intel shareholder, I actually saw many reasons to applaud this report.

  • Week-by-week business trends indicate that the data center weakness has peaked and should return to growth in the next quarter.
  • The well-documented manufacturing issues that kept Intel from dominating the 7-nanometer processor generation are reaching an end. Intel is taping out early designs for its first 7-nanometer CPU, scheduled for market debut in 2023.
  • Intel is hiring thousands of engineers and investing billions of dollars in infrastructure and research and development efforts, all to reignite the company's storied culture of innovation. This is an expensive but important step that sets the stage for stronger business results in the long run.

"It's amazing to be back at Intel, and Intel is back," CEO Pat Gelsinger said on the earnings call. "You can feel the energy inside of Intel, the passion to innovate, and the drive that made us great."

Let me also remind you that Intel's financial targets for the full year were respectable, and the stock is falling today due to an unreasonable focus on short-term challenges. If anything, I'm tempted to buy more Intel stock at these lower prices. Maybe you should, too.