Share prices of Intel (INTC 0.02%) have gained some momentum since hitting a 52-week low on Oct. 13, which seems a tad surprising when you consider that the chipmaker posted woeful results at the end of October revealing a huge drop in the company's revenue and earnings. It seems investors remain optimistic that Chipzilla's fortunes could turn around sooner than later.
Let's look at the possible reasons investors may be optimistic about Intel.
Intel may finally have an answer to AMD's client processors
It is no secret that Advanced Micro Devices (AMD -2.94%) has been clawing away at Intel's dominance in the x86 processor market, but Chipzilla turned the tables to some extent last quarter. Mercury Research estimates that Intel's share of the desktop and notebook processor markets increased in the third quarter of 2022.
More specifically, Intel gained 3.1 percentage points of market share in desktop central processing units (CPUs) in Q3 over the prior-year period, ending the quarter with a total share of 86.1%. Its market share of notebook processors was up 6.3 percentage points year over year to 84.3%.
It is not surprising that Intel was able to arrest AMD's growth in the client CPU market. Chipzilla's 13th-generation Raptor Lake processors, which went on sale in October of this year, reportedly outperform AMD's offerings in important areas such as pricing, gaming performance, content creation, specifications, and value for money.
That's even though Intel's processors are made with a refined version of its 10-nanometer (nm) Intel 7 process chips. AMD's latest Ryzen 7000 processors, on the other hand, use 5nm chips. Chips based on a smaller process node should ideally perform better since they pack transistors more closely, leading to more computing power and less energy consumption. But it seems Intel found some alternative using its latest architecture.
Moreover, Intel is expected to push the envelope further in 2023 with the launch of the Meteor Lake client CPUs, which will reportedly be based on a 7nm process node. So Intel may be able to keep AMD at bay in client CPUs next year if it manages to stick to its product roadmap. That could give some respite to Intel's client computing group (CCG), which reported a terrible third quarter.
The segment's revenue fell 17% year over year to $8.1 billion in the third quarter. With sales of personal computers (PCs) and tablets expected to drop at a slower pace of 2.6% in 2023 following a 12.8% drop this year, Intel's CCG business could fare better next year. That would bode well for Intel's top line, as CCG produced 53% of the company's total revenue last quarter.
Intel continues to lose ground in a critical market
While Intel's progress in client CPUs should give investors a reason to be optimistic, the semiconductor giant continues to lose share in an important market: server processors. Mercury Research estimates that Intel's share of server processors fell 7.3 percentage points year over year to 82.5% in the third quarter.
The bad news for Intel is that AMD could keep gaining market share at a fast clip in the server processor market in 2023 following the launch of its fourth-generation Epyc chips, which have already gained impressive traction among customers. Intel is set to launch its next-generation Sapphire Rapids server processors on Jan. 10 following several delays. It remains to be seen if the processor could turn the tide for Intel, as the delays have already given AMD an upper hand in the server processor market.
Additionally, the launch of Nvidia's (NVDA 0.35%) Grace server processors next year poses another challenge to Intel's dominance in this space. That's because Nvidia's Grace server processors are reportedly based on a 5nm process node, which means that they would be more powerful and use power more efficiently -- at least in theory -- than Intel's Sapphire Rapids architecture, which is based on a 10nm process node.
Intel's data center revenue fell a steep 27% year over year in the third quarter to $4.2 billion thanks to its market share losses to AMD. Nvidia's foray into this niche could make it difficult for Intel to turn its fortunes around in this segment, and that could weigh on the company's ability to sustain its recent stock market rally.
Is the stock worth buying?
Analysts are expecting a big improvement in Intel's performance next year. Its top line is expected to contract by 4% to $61 billion in 2023 following this year's estimated decline of 15%. Adjusted earnings are expected to drop 4% to $1.88 per share following a steep 64% drop in 2022.
If Intel continues to do well in client processors and turns its fortunes around in the server space with its new chips, then it could live up to analysts' expectations and the stock could head higher. But if the execution problems that plagued the company return and it keeps losing market share, investors are likely to press the panic button again, which is why new investors should be cautious about buying this semiconductor stock.