Intel Shares Drop 16% as PC Market Slowdown Hits Q4 Forecast

Intel's stock plunged 16% in after-hours trading on Thursday following a disappointing forecast for the fourth quarter. The chip giant attributed the weaker guidance primarily to ongoing softness in the global personal computer market, reflecting broader challenges in the sector.

For the third quarter, Intel reported adjusted earnings per share of 52 cents, surpassing analyst expectations of 40 cents. Revenue came in at $16.51 billion, slightly above the $16.5 billion analysts had predicted. This represented a 21% increase compared to $13.7 billion during the same period last year.

Despite the overall revenue growth, Intel's client computing and physical AI division experienced a 5% decline year-over-year, generating $8.1 billion and missing estimates. Meanwhile, the data center and artificial intelligence segment saw a substantial 78% increase, bringing in $7.3 billion.

Market research from Counterpoint indicates that global PC shipments fell by 4% in the second quarter compared to the previous year. The decline has been linked to rising prices for memory and other key components impacting demand.

Looking ahead, Intel projected adjusted earnings per share of 25 cents for the current quarter, with revenue expected between $15 billion and $16 billion. These figures fall short of Wall Street forecasts, which called for $17.1 billion in revenue and EPS of 43 cents.

David Zinsner, Intel's Chief Financial Officer, acknowledged the continuing weakness in the PC market, stating, "We see the PC slowdown continuing at least through the first half of next year, but we remain optimistic about the opportunities across our broader portfolio." He emphasized the company's commitment to making prudent investments in capacity and working capital to boost supply and support future growth.

Intel also disclosed that an explosion at one of its fabrication plants in Israel earlier this month has had a significant financial impact. The tragic accident resulted in two fatalities and one serious injury. Zinsner told Reuters the incident is expected to cost the company around $600 million in lost revenue over two quarters. He added that production at the affected facility is slated to resume ramp-up by the end of the week.

This year, Intel's stock has surged roughly 150%, but it has faced a sharp pullback of about 23% in October amid investor concerns over the pace of artificial intelligence infrastructure expansion. Known primarily for its central processing units (CPUs), Intel has benefited from the growth in AI applications that rely on CPUs to coordinate tasks and manage data. While many AI models depend heavily on graphic processing units (GPUs) from rivals Nvidia and AMD, agentic AI applications like Meta's Muse and OpenAI's Dots utilize Intel's CPUs.

Intel CEO Lip-Bu Tan expressed confidence despite near-term challenges, noting, "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."

In the competitive semiconductor space, Nvidia remains dominant in GPUs and is set to announce quarterly results in mid-November, while AMD will report its results next week. Intel’s foundry segment is still working on gaining traction after difficulties in establishing market share.

Intel stands as the only U.S.-based producer of advanced logic chips and recently began high-volume manufacturing of its cutting-edge 18A chip at a new fabrication plant in Arizona. This facility offers an alternative to Taiwan Semiconductor Manufacturing Co. (TSMC), the industry's leading contract manufacturer. Analysts suggest that a major fabless chip company may soon opt to partner with Intel for its next-generation 14A chip, seeking to diversify suppliers and encourage competitive pricing from TSMC.

Supply constraints remain a concern, with Intel’s CFO highlighting shortages in substrates, a critical material for chip production. Intel has also received significant investments recently, including a 10% stake from the Trump administration last year after falling behind on 7- and 10-nanometer technologies. Nvidia and Softbank have likewise invested billions.

Under Tan's leadership, Intel has adopted a more cautious approach to foundry investments compared to his predecessor, Pat Gelsinger, who had launched an ambitious revival plan for the foundry business.

Construction continues on Intel's large Ohio chip fabrication plant, where the first structural truss was installed last week. This facility, originally expected to start chip production in 2025, faces ongoing development. Another fab in Arizona is anticipated to begin operations by the end of 2028.

Intel also recently expanded its partnership with Oracle. At Oracle’s annual AI conference, the company announced plans to deploy Intel's next-generation Xeon server processors alongside Nvidia and AMD rack-scale systems to enhance its data center capabilities.

In August, Intel completed a $23 billion equity offering, reflecting the massive capital demands of the semiconductor industry. Global tech companies continue to pour trillions of dollars into AI and infrastructure to meet growing computational needs.