Intel Stock Has Dropped on Guidance, But the Future Is Bullish
Intel Corporation (NASDAQ:INTC) reported nine percent higher revenues for its third quarter of this year. But even as revenues of $15.8 billion were flying, as were just about all indicators of performance, Intel stock dropped. What could account for investors’ trend-defeating reaction? The question is most relevant, as Intel didn’t merely post good results; it beat the most-optimistic expectations.
Perhaps Intel stock had already absorbed the potential upside; it gained 7.40% in the past three months. INTC stock shares moved from about $33.00 to the high $38.00 range in that time. The results dragged it down to about $35.50, so it’s still trading in a bullish band, considering it’s 12% higher year-to-date. There may have been profit-taking, but there’s no suggestion that this will continue for much longer.
The company advised a less-enthusiastic guidance for the next quarter. But, other than that, the fundamentals and prospects for INTC stock are bullish. Until last August, the company got a largely negative earnings prognosis, so the results are even more encouraging. Indeed, Intel reported good results from all of its segments.
Intel Corporation’s “Client Computing Group” division for personal computer (PC) processors, for instance, saw five percent year-over-year growth in revenue. That’s bullish because it suggests that PC sales are increasing. Intel’s “Data Center Group” gained 13% on revenue, and the most encouraging sign of all—as far as future prospects for INTC stock shares go—is that the “Internet of Things” department grew about 19% in the course of a year.
The Overall Picture is that Intel Has Delivered in All Segments
Demand for Intel’s products has yet more room to grow. The main problem may have been the fact that Intel was conservative with its guidance for the fourth and final quarter. It set the target at $15.7 billion in revenue (+/- $500.0 million), and that’s why analysts were expecting much more.
This suggests that eventually, in the next few weeks, as the guidance expectation shock wears off, actual investors’ reality will replace the make-believe models of analysts, infusing Intel stock with much-deserved bullish sentiment. The “regret” or “vulture” traders are already pondering making the move on INTC stock. It’s dropped five percent and looks even more appetizing. (Source: “Traders debate buying pullback in Intel after earnings,” CNBC, October 18, 2016.)
Some are concerned that Intel’s restructuring is costing too much and is lasting too long. (Source: “The Intel money pit: Renovations cost more, no results in sight,” Marketwatch, October 20, 2016.)
But we are not talking about the renovation of a small detached house here. Intel has been a leading processor manufacturer for years; it’s helped spread computers to households all over the world.
Intel Corporation’s Transformation Will Take Time
Part of that transformation, which has certainly contributed to INTC stock’s strong performance over the past quarter, has been the selling of McAfee. This move set Intel on a new course, as it has signaled the end of its affair with cybersecurity.
This was a bullish move on two fronts. The first is rather basic: the sale added $4.2 billion to Intel’s coffers. The second has a more long-term vision. Intel failed to get on board the smartphone revolution, and it has also decided not to compete in cybersecurity, where it had hoped to integrate its chips business with McAfee (it didn’t happen).
Intel has decided to play a major role in a sector of the industry that is so new it’s known as “emerging technologies.” What’s popular and what’s hot has yet to be written here, but Intel can head into this unknown world boldly. One of the most promising aspects is what is now known as the Internet of Things (IoT), 3D, and virtual reality (VR). (Source: “Intel acquires Replay Technologies, sets sights on 3D sports broadcasting,” Ars Technica, March 9, 2016.)
Intel is also going to profit from drones and drone cameras, which will see popularity explode thanks to the new GoPro Inc (NASDAQ:GPRO) all-in-one “Karma.” The way Intel will take its cut from the drone business is by working with other processor developers like Qualcomm, Inc. (NASDAQ:QCOM), for example, to develop a better camera. (Source: “Intel pours $60 million into drone maker,” Fortune, August 28, 2015.)
Finally, Intel stock will rise soon, as the company completes its reinvention while still maintaining a grip on the segments that made it a tech darling years ago: PCs.