Insights

Why Intel Stock Tanked on Friday

What happened

Shares of Intel (NASDAQ: INTC) were down 10.5% as of 9:44 a.m. ET on Friday after the chipmaker delivered disappointing earnings results following the market close on Thursday. 

The stock has fallen 30% year to date and has significantly lagged the return of the S&P 500 index due to competitive pressures. The company is now dealing with soft economic activity, which doubles the blow.

So what

Revenue fell 22% versus the year-ago quarter, which hit the bottom line hard, as non-GAAP earnings per share plunged 79%. CEO Pat Gelsinger cited “the sudden and rapid decline in economic activity” as the biggest factor leading to the weak performance, along with execution issues. 

During the earnings call, management blamed inventory reductions, lower selling prices, and competitive pressures for a 16% year-over-year decline in the data center and AI Group segment. 

Investors will have to wait to see whether some of the economic pressures also hit Advanced Micro Devices when it reports earnings results on Tuesday, Aug. 2. AMD has been gaining market share in both the consumer desktop and server markets. Analysts currently project AMD to grow revenue by 59% this year. 

Now what

Intel’s mention of execution missteps is troubling news for investors. In 2021, Gelsinger became CEO to fix previous execution issues that caused the company to fall behind the innovation curve of its smaller rival.   

Intel said it will slow hiring and capital spending to maintain its previous guidance for adjusted free cash flow of negative $1 billion to positive $2 billion for the full year. This may only fuel AMD’s momentum, as it remains on offense after recently completing the acquisition of programmable chip supplier Xilinx. 

John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Intel. The Motley Fool recommends the following options: long January 2023 $57.50 calls on Intel and short January 2023 $57.50 puts on Intel. The Motley Fool has a disclosure policy.

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