Why did fourth-quarter guidance dent confidence?

  • Intel expects client computing revenue to fall more than 20% sequentially in the fourth quarter of 2026, a steeper decline than the 9% previously forecast by HSBC; HSBC’s original forecast was already 15% below market consensus.
  • Management believes the continuing rise in average memory selling prices is suppressing PC demand. It expects the total addressable PC market to shrink 12% year over year in the second half of 2026 and 10% in 2027.
  • After the guidance was released, Intel shares fell 23% in after-hours trading. HSBC believes the shortfall undermined the confidence built by the company’s better-than-expected results and guidance raises over the previous two quarters.

Why couldn’t server growth close the gap?

  • The company expects fourth-quarter server CPU revenue to grow by a mid-teens percentage sequentially, broadly in line with the market consensus of 13% but below the 20%–23% forecast by HSBC and some bullish sell-side analysts.
  • Disrupted operations at the Fab 28 plant in Israel affected the supply of 10-nanometer server CPUs, reducing fourth-quarter revenue guidance by $300 million and gross margin guidance by 2 percentage points.
  • The two businesses had already diverged in the third quarter: client revenue was $8.097 billion, down 9% sequentially, while data center and AI revenue was $7.318 billion, up 17%. Total company revenue was $16.513 billion, up 2% sequentially.

Why is HSBC still optimistic about 2027?

  • Intel management expects industry server CPU shipments to grow 30% year over year in 2027. HSBC forecasts growth of 21% and maintains its expectation for Intel server CPU revenue of $37 billion, up 36% year over year and about 10% above market consensus.
  • For its advanced EMIB packaging, the company expects to announce several new customers over the next two quarters and is currently focused on improving yields and substrate capacity. HSBC also believes progress on the 18A and 14A processes and engagement with external customers supports the foundry business’s valuation.
  • Growth remains subject to cost constraints: Intel maintained its 2026 capital expenditure guidance of $20 billion while expecting capital expenditure in 2027 to be significantly higher than in 2026. Server CPU shipments or price increases below expectations would also affect HSBC’s assessment.

What supports the valuation after the price target cut?

  • HSBC cut its price target from $200 to $160 and maintained its buy rating. Citing a weaker PC outlook, the bank lowered the core business’s target price-to-earnings multiple for 2027 from 30 times to 24 times, implying a value of about $90 per share.
  • HSBC separately values the foundry business at about $70 per share, using a 2027 price-to-book multiple of 3.1 times and second-tier foundries as comparables. The bank is watching for confirmation of external customers and improved foundry margins.
  • Earnings forecasts were also lowered: HSBC cut its earnings-per-share forecasts for 2026 and 2027 from $1.66 and $2.50 to $1.48 and $2.23, respectively, reductions of 10.7% and 10.5%.