Bernstein: Intel’s fourth-quarter guidance falls well short of expectations: server growth cannot offset PC decline

Why were third-quarter results mixed?

Intel reported third-quarter revenue of $16.513 billion, broadly in line with market expectations of $16.534 billion; earnings per share were $0.52, above the expected $0.40.
Client business revenue was $8.097 billion, below market expectations of $8.819 billion, as memory shortages affected the PC market. Data Center and AI revenue was $7.318 billion, above the expected $6.675 billion; the company said supply had improved, but demand still far exceeded supply.
Gross margin was 44.1%, above market expectations of 42.0%, benefiting from improved yields on the Intel 3 and 18A processes and a more favorable product mix; lower operating expenses also helped earnings per share exceed expectations.

The company guided for fourth-quarter revenue of $15.5 billion, below market expectations of $17.03 billion; its earnings per share guidance of $0.25 was below the expected $0.43. The revenue guidance implies a decline of approximately 6% from the third quarter.
Weaker demand and a sharp inventory adjustment were the main reasons. Bernstein expects fourth-quarter client business revenue could be approximately $6.3 billion, down more than 20% from the third quarter, compared with prior market expectations of approximately $8.4 billion; the trend is expected to continue into the first quarter of the following year.
The company also expects total PC market shipments to decline 10% year over year in 2027. Bernstein believes PC headwinds are more severe than it previously anticipated and significantly worse than investors expected.

The company expects Data Center and AI revenue to grow approximately 15% quarter over quarter in the fourth quarter. Bernstein estimates it could reach $8.4 billion, above market expectations of $7.7 billion, but still not enough to offset weakness in the client business.
Fourth-quarter gross margin guidance is 38%, below the third quarter’s 44.1% and market expectations of 42.8%. Production was halted at the Israeli factory after a fatal accident in October, with an estimated revenue shortfall of approximately $300 million; losses from scrapped materials are expected to reduce gross margin by approximately 2 percentage points.
Bernstein noted that even excluding the one-off impact of the accident, fourth-quarter revenue and gross margin would remain significantly below market expectations.

Bernstein believes the strong performance of the server business is helping Intel recover, but fourth-quarter pressure on the PC business could weigh on the share price. At the time of the report, Intel shares were down approximately 20% in after-hours trading.
The firm assigns Intel a “Market Perform” rating and a price target of $110. Its valuation applies an enterprise value multiple of approximately 8 times to its average revenue forecast of approximately $78.3 billion for fiscal 2027 and 2028.