It is surprising to see that shares of Intel (INTC -1.75%) have rallied of late -- gaining 8% since hitting a 52-week low on Oct. 13 -- despite the spate of headwinds that have wrecked the semiconductor giant's top and bottom lines lately.

From a shrinking personal computer (PC) market to a loss of share to Advanced Micro Devices in the client and server processor markets, the odds are stacked against a turnaround at Intel. Still, investors seem to be in an upbeat mood following the company's third-quarter results released on Oct. 27.

But will their happiness be short-lived? Or is Intel's latest plan to turn its business around going to work and help the stock sustain its rally?

Intel's results paint a terrible picture

Intel's revenue and earnings were better than what Wall Street was anticipating last quarter, but that's where the good things about the company's results end.

Intel's revenue of $15.3 billion was down 15% over the prior-year period. The adjusted gross margin shrunk 12.4 percentage points year over year, while the operating margin was down a whopping 21 percentage points. As a result, Intel's adjusted earnings fell 59% year over year to $0.59 per share.

The company's woeful performance was a result of sharp declines in its client computing and data center businesses. Weak PC demand from the consumer and education markets, as well as inventory reductions by OEMs (original equipment manufacturers) considering the poor demand, led to a 17% decline in revenue from the client computing group to $8.1 billion. Intel also shipped fewer server processors last quarter, which led to a 27% drop in data center and artificial intelligence (AI) revenue to $4.2 billion.

The bad news piled up as Intel slashed its full-year guidance. It is now looking at 2022 revenue of $63.5 billion at the midpoint of its guidance range, down from the prior guidance of $66.5 billion. That's not surprising, as Intel expects PC shipments to decline in the mid-to-high teens in 2022. The situation in the data center business doesn't appear to be promising either, as AMD is expected to gain more ground by the end of the year.

AMD reportedly controlled 27.6% of the server processor market in the third quarter, according to third-party estimates. Intel is expected to lose more ground in the current quarter, as AMD's share of this lucrative market could hit 30.3%. The market share losses in the data center space don't bode well for Intel, as this niche presents a $42 billion addressable revenue opportunity.

Delays in the launch of new server processors have hamstrung Intel's data center business, handing AMD the advantage in this market. For instance, AMD is expected to release its latest-generation Epyc server processors before Intel brings the competing Sapphire Rapids to market.

Meanwhile, Hewlett Packard Enterprise is set to launch systems powered by AMD's fourth-generation Epyc processors later this month. Sapphire Rapids processors, which were supposed to hit the market in 2021, are now expected to go into volume production only in 2023. Moreover, the PC market's weakness is expected to persist in 2023 as well.

All this makes a turnaround at Intel even more difficult. This explains why analysts expect a 3% decline in Intel's revenue in 2023, which would be an improvement over this year's estimated decline of 14%. But it remains to be seen if Intel could get its house in order and deliver an improved performance in 2023, especially considering that it will be substantially reducing expenses.

Intel plans to achieve savings between $8 billion and $10 billion by 2025. The company says that one-third of those savings will come from reducing operating expenses, so there may be an impact on the company's research and development spending as well. Intel spent $4.3 billion on research and development last quarter, up 13% year over year.

An aggressive capital spending plan was supposed to be the key to Intel's turnaround in the long run. But now that the company is looking to reduce costs, it could impact its ability to ward off AMD's growing dominance in the client and server processor markets.

The rally doesn't seem sustainable

In all, it can be said that Intel's fortunes are unlikely to turn around over the next year. The loss of more market share to AMD and the headwinds in the PC market could dent investor confidence in this semiconductor stock and bring its recent rally to an end.

Of course, Intel stock is cheap, as it is trading at 8.8 times earnings, and investors are probably looking forward to the cost-saving moves that could drive gains in the company's bottom line. But with a forward price-to-earnings ratio of 15.7, which is higher than the trailing earnings multiple, it is evident that analysts are anticipating a decline in its bottom line.

Even worse, Intel's earnings are expected to contract at an annual pace of 21% for the next five years, suggesting that analysts aren't confident in its long-term prospects either. That's why investors on the hunt for beaten-down tech stocks should consider looking elsewhere, as Intel's rally doesn't seem sustainable.