Intel server chips. Image source: Intel. 

This morning I came across an article published on The Street titled, "It's Time to Log Off From Intel (NASDAQ:INTC)." The piece, written by Chris Laudani, goes into quite some detail as to why, if he owned Intel stock, he would sell into the recent rally in the stock.

In this article, I'd like to highlight a number of issues with this argument.

Are Q1 estimates overly aggressive? Be careful
Laudani notes that current analyst consensus calls for Intel to rake in around $13.9 billion in revenue during its first quarter, which would work out to around 9.2% growth on a year-over-year basis. That might seem aggressive, but investors need to be careful because these year-over-year numbers aren't comparing apples to apples.

Remember: Intel acquired programmable logic specialist Altera back in 2015 and the deal closed on Dec. 28, 2015. This means that Altera's financial results will be included in the first-quarter results this year, but they weren't last year, driving a significant portion of the year-over-year increase.

To be clear, current estimates call for Intel to hit roughly the midpoint of the guidance range that it issued back in January ($14 billion +/- $500 million on a GAAP basis; $14.1 billion +/- $500 million on a non-GAAP basis).

Intel could very well report revenue more to the low end of the guidance range, which would still be a "miss." However, given the lack of a pre-announcement from Intel, a figure outside of that guided range (either to the upside or the downside) is very unlikely.

Data center growth
In the article, Laudani asserts that Intel's data center business saw 18% growth in 2014 but that it's "only expected to grow about 9%" this year. I'm not sure where the author got this figure, but on the company's most recent earnings call, CEO Brian Krzanich said the following with respect to growth in this segment: "We are looking at the long view and we are very confident that yes, we will continue into this double-digit growth in the data center."

Now, Intel could very well revise this guidance on the upcoming earnings call if things aren't going as planned for the business -- this has often been the case over the last five years -- but there hasn't been much indication from the analyst community that there has been a slowdown in this business segment. The weakness that's been widely reported seems focused exclusively around the PC market.

A "ton" of inventory?
Laudani makes a similar argument to the one that Bernstein Research's Stacy Rasgon made in a recent note: Intel saw inventories increase by about 20% year over year even as revenue has grown at a substantially lower rate.

The worry that Rasgon raised is that if Intel winds up reducing its demand forecast, it will need to cut factory utilization rates, which would be a drag on gross profit margins.

This is a fair argument, but Laudani implies that such a scenario would lead to a gross margin impact in the first quarter of the year, which isn't likely. The gross margin impact from such a move would actually come in subsequent quarters (either the second or third, depending on when the factory loadings were cut) as it takes about a quarter to go from wafer start to finished chip that can be sold into the market. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.