Bank of America: Intel's PC business brakes sharply as BofA downgrades stock and pushes back recovery expectations

Why the downgrade despite better-than-expected third-quarter earnings?

Intel's third-quarter 2026 revenue was $16.513 billion, broadly in line with market consensus. Non-GAAP earnings per share were $0.52, beating consensus by $0.11, mainly driven by strong server CPU performance.
However, the company's fourth-quarter revenue guidance of $15.5 billion was below market consensus of $17.047 billion; its non-GAAP earnings-per-share guidance of $0.25 was also below consensus of $0.43. BofA downgraded the stock from Buy to Neutral and cut its price target from $145 to $100.
BofA lowered its 2027 revenue forecast from $73.116 billion to $67.103 billion and its non-GAAP earnings-per-share forecast from $2.01 to $1.69, cuts of approximately 8% and 16%, respectively.

Third-quarter Client Computing and Physical AI revenue was $8.097 billion, down 8.8% quarter over quarter; Data Center and AI revenue was $7.318 billion, up 16.9% quarter over quarter.
BofA expects fourth-quarter PC shipments to decline 25%–30% quarter over quarter, with further inventory adjustments in the first half of 2027. The bank expects fourth-quarter Client Computing revenue to fall to $6.047 billion and Data Center and AI revenue to rise to $8.494 billion.
Server CPUs benefit from demand for AI agents, but BofA believes substrate supply is tight and products still lag AMD and ARM-based rivals in technological competitiveness; the latter are growing at 2 to 4 times Intel's rate.

Inventory at the end of the third quarter was $13.068 billion, up 4.6% quarter over quarter; days of inventory rose from 118.5 in the second quarter to 126.6, adding to pressure alongside the subsequent expected PC inventory adjustment.
BofA expects capital spending to rise from $17.716 billion in 2026 to $26 billion in 2027; high spending will constrain free cash flow in the near and medium term. Under the bank's cash flow definition, free cash flow in 2027 is expected to be negative $2.576 billion.

BofA arrived at its $100 price target using 2030 earnings per share of $5.89 and a price-to-earnings multiple of approximately 20 times, discounted by two years; its previous target was $145. The new target implies company value of approximately $550 billion, of which approximately $100 billion is attributed to the emerging foundry business.
The long-term model forecasts 2030 Data Center and AI revenue of $60 billion and external foundry revenue of $46 billion; the latter includes wafer and advanced packaging services. BofA believes progress with external foundry customers remains insufficient, and that customer progress on 18A-P or 14A could drive a valuation recovery.
The foundry business in the model is expected to become operating profitable in 2029; actual results depend on external customer orders and the yield and capacity ramp-up of the 18A and 14A processes. BofA said it would not adjust its base foundry model until specific transaction details become clearer.