Intel Corp. somehow managed to beat expectations despite facing softness in the personal computer market, but its weak forecast for the current quarter sparked panic among investors, and its stock plunged more than 22% in late trading today.
The computer chipmaker reported third-quarter earnings before certain costs such as stock compensation of 52 cents per share, easily beating Wall Street’s guidance of 40 cents per share. Revenue for the quarter rose 21% from a year earlier, to $16.51 billion, edging past the Street’s target of $16.5 billion. All told, the company posted net income of $3.3 billion, down from the $4.1 billion it earned in the same period last year.
However, the results couldn’t mask the poor performance of Intel’s client computing and physical AI business, where revenue dropped 5% from a year earlier, to $8.1 billion, missing the Street’s target. The company was held up by its data center and AI unit, where revenue soared 78%, to $7.3 billion.
The client computing business is struggling because the PC market is currently in decline. Global PC shipments fell 4% in the second quarter according to data from Counterpoint Research, partly due to the soaring costs of memory and other components.
Things are likely to get even worse in the PC market, which is why Intel could only offer a tepid forecast going forward. The company said it’s looking for fourth-quarter earnings of about 25 cents per share at the midpoint of its guidance range, with revenue at between $15 billion and $16 billion. Analysts are targeting earnings of 43 cents per share and sales of $17.1 billion.
Intel’s finance chief David Zinsner said the company sees the PC slowdown continuing until at least the first half of next year. “We will continue making disciplined investments capacity and working capital to increase supply and support future growth,” he told investors.
During the quarter, the company suffered a tragic setback when an explosion occurred at one of its chip fabrication plants in Israel, resulting in the deaths of two workers and serious injuries to a third person. That incident will cost the company about $600 million in lost revenue over the next two quarters, Zinsner told analysts on a conference call. Chief Executive Lip-Bu Tan (pictured) said the “unfortunate and tragic accident” resulted in an “extended shutdown” at the plant, delaying shipments of new 10-nanometer chips.
Today’s after-hours drop slams the brakes on what had been one of the fastest-growing technology stocks this year. Intel’s stock had been on an upward tear all year, rising more than 150% since January. However, the stock’s growth had already stalled since the beginning of the month amid growing concerns about the tech industry’s runaway spending on artificial intelligence infrastructure. “We will remain disciplined as we invest and we will not spend $1 of capital unless we have confidence in the health of our products and process technologies and clear evidence of customer demand,” Zinsner said in an effort to reassure investors.
Intel is best known for the central processing units that power much of the world’s PCs, but its recent revival has primarily been driven by the emergence of agentic AI workloads. Chatbots such as ChatGPT and Gemini primarily use the graphics processing units sold by rival chipmakers like Nvidia Corp. and Advanced Micro Devices Inc., but AI agents such as Meta Platforms Inc.’s Muse and OpenAI Group PBC’s Dots run more efficiently on CPUs. As agentic AI has grown in popularity this year, so too have Intel’s chips.
“Despite near term headwinds affecting the broader PC industry, we continue to see robust demand for CPUs and more broadly, for all our computing platforms in the long term,” Tan insisted.
However, the demand for Intel’s CPUs has been offset by the struggles of its nascent foundry business, which was spun out as a separate business unit a couple of years ago but has struggled to gain traction with customers. So far, its only major customer is Intel itself.
The company’s fab in Arizona is the only U.S.-based facility that’s able to mass produce advanced logic chips. “We are going to have a couple of customers ready to announce in the next two quarters,” Tan promised analysts on the call. He added that the company is also making “tremendous progress” with its forthcoming 14A chips.
Intel, which had previously fallen behind on its roadmap for seven- and 10-nanometer chips, has been struggling to get back on track but has benefited from a vote of confidence by President Donald Trump, whose administration took a 10% stake in the company last year. Since then, Nvidia and SoftBank Group Corp. have also invested billions of dollars into the chipmaker.
Tan is generally viewed as being more cautious than his predecessor, Pat Gelsinger, who made the decision to spin out the foundry business and try to attract external customers. But at the same time, he has also given the green light to some significant investments such as a new chip fab in Ohio that was first expected to come online last year. So far it hasn’t, but Intel said last week that construction crews have installed the first structural truss at the facility.
Last month, reports emerged that Intel was talking to the high-bandwidth memory chip manufacturer SK hynix Inc. about the prospect of it leasing a part of the Ohio fab’s capacity. The South Korean firm reportedly wants to manufacture some of its memory chips at the new site, but so far nothing concrete has been announced. Tan refused to acknowledge those talks, telling analysts that the company “continues to evaluate unique and highly differentiated opportunities to accelerate our Ohio buildout, and I hope to share more on this in the near future.”