The past year has been a rewarding one for Intel (INTC -1.63%) investors as shares of the chipmaker have jumped 46% on the stock market. Its stock has jumped 34% just since the company released its third-quarter results on Oct. 26. Chipzilla's revenue and earnings crushed Wall Street's expectations, and the guidance was also well ahead of consensus estimates.
Let's look at the factors driving Intel stock's latest rally and see if it could sustain the same over the next year.
Intel is on the road to recovery
Intel was hit hard by the downturn in the personal computer (PC) market over the past couple of years. Market research firm IDC points out that PC shipments declined 16.5% in 2022, and the trend has continued this year. PC shipments were down 7.6% year over year in the third quarter of 2023.
As Intel gets 55% of its revenue from selling processors used in PCs through its client computing group (CCG), it is not surprising to see why the chipmaker's revenue has dropped for seven straight quarters on a year-over-year basis. However, a closer look at the company's latest results suggests that a turnaround is underway at Intel.
The company reported Q3 revenue of $14.2 billion, which was higher than the $13.6 billion revenue that analysts were expecting. Intel's non-GAAP (adjusted) earnings, however, increased 11% year over year to $0.41 per share, which was significantly ahead of the $0.22 per share consensus estimate. The company's adjusted operating margin increased 2.8 percentage points year over year last quarter to 13.6%.
The improvement in Intel's earnings last quarter can be attributed to a stronger margin profile on account of a recovery in the PC market. Though PC sales were down in Q3, they fell at a much slower pace when compared to the 13.4% drop seen in the second quarter and the massive year-over-year decline of 29% in the first quarter.
This explains why Intel CEO Pat Gelsinger said on the October earnings conference call that "customers completed their inventory burn in the first half of the year." Given that the PC market is expected to grow in 2024, with shipments expected to increase 3.7% to 261.4 million units, Intel's financial performance should continue to get better.
This is evident from the company's fourth-quarter guidance. Chipzilla anticipates $15.1 billion in revenue in the current quarter at the midpoint of its guidance range. That would be an 8% improvement over the year-ago quarter when the company's revenue was down 32% year over year to $14 billion. Intel expects non-GAAP earnings to land at $0.44 per share, which would be a big improvement over the prior-year period's figure of $0.10 per share.
So, with Intel's biggest end market set for a recovery in 2024, it is not surprising to see why Wall Street is anticipating a nice jump in the company's revenue and earnings.
How much upside can investors expect?
Intel's top line is anticipated to increase 13% in 2024 to $56 billion, following this year's anticipated drop of 21%. What's more, the company's earnings are forecast to double next year to $1.90 per share.
INTC EPS Estimates for Current Fiscal Year data by YCharts.
Intel seems capable of delivering such growth as its Q4 guidance points toward a big surge in earnings. Assuming the company does hit Wall Street's earnings expectations, its stock price could jump to almost $52 over the coming year based on the Nasdaq-100 index's forward earnings multiple of 27.2. That would represent a 20% jump from current levels -- although don't be surprised to see this semiconductor stock deliver even stronger gains thanks to additional catalysts such as AI.
Given that Intel is trading at 24 times forward earnings right now, investors are getting a good deal on this stock as it is cheaper than the Nasdaq-100's forward earnings multiple, which may not be the case later on as the company's growth accelerates.
