Intel (INTC 1.45%) seems to have finally broken its downtrend. Following a strong earnings report, it surged nearly 7% higher and is up 30% this year.
But despite that significant increase, investors may still have time to get in on the recovery for this semiconductor stock. A closer look reveals why.
Q2 earnings and some technical wins boosted Intel
Revenue for the second quarter of 2023 came in at just under $13 billion. Since that is down 15% year over year, one might not see that as a buy signal. A $2.3 billion income tax benefit helped its generally accepted accounting principles (GAAP) net income rise to around $1.5 billion, and non-GAAP earnings were $547 million.
Nonetheless, in Q3, Intel guided for up to $13.4 billion in revenue at the midpoint and forecasted a profit. Hence, investors appeared pleased with its results.
Moreover, it appears the worst is over for Intel's PC business. Client-computing revenue dropped 12% compared with the same quarter last year. But that was less than the 38% drop from the previous quarter.
Furthermore, Intel has finally made technical gains over rival Advanced Micro Devices with its Raptor Lake chips, as it outperformed AMD's Ryzen 7000 in speed tests. That may help explain the 4% increase in desktop revenue even as notebook revenue still fell 18%.
Additionally, Intel's foundry business makes up less than 2% of revenue, but revenue rose more than fourfold over the last year. These foundries produce the Raptor Lake chips, indicating it has made strides in meeting its goal of surpassing Taiwan Semiconductor (TSMC) technically by 2025.
Intel was long the world's largest semiconductor company, and after losing its technical lead, it wants this industry lead back. If it succeeds, it could bode well for Intel's long-term performance.
Where Intel still lags
However, the chip industry is more than PCs. Unfortunately for its shareholders, Intel may lag in data centers and AI, where AMD and GPU king Nvidia hold a technical edge.
In Q2, revenue for the data center and AI group dropped by 15%. Indeed, AMD's data-center revenue fell by 11% in the same period. Nonetheless, in 2022, AMD's market share grew from 12% to 20%.
Intel stock is also flat on the year. This compares poorly to TSMC and its fabless rivals, which have grown significantly faster.
Additionally, many investors have questioned whether Intel can excel at both chip design and production. This approach worked for them as the company that helped pioneer the industry. But with the most successful chip companies now outsourcing the manufacturing, one might question whether Intel and its foundry business need to separate.
Is it too late to buy Intel?
Given Intel's positioning, it is probably not too late to buy. Despite an improved performance, Intel lagged behind the S&P 500 over the last year.
Moreover, regaining the technical lead in PCs should dispel much of the doubt that it can be a leading chip stock in today's market.
Indeed, it has lost a lot of traction in the data-center market, and its success with Raptor Lake does not guarantee it will gain an overall lead on TSMC by 2025. But with its massive presence and prospects for recovery, investors can still profit from the Intel recovery story.
