INTC slumps on capex strategy, margins

Intel Corporation (INTC) stock likely shocked a number of investors on Thursday after the legacy chip maker sold off 7% after producing a solid earnings beat. The reason for the slide was management’s forecast that the company would be doubling down on capital expenditures. INTC shares closed at $48.05 and are down another 0.6% to $47.76 in Friday’s premarket.

Intel Stock News: investors run for the exits

If you missed it, Intel hit a walk-off home run in the bottom of the ninth with its Q4 earnings. The semiconductor major reported earnings per share (EPS) of $1.09 on $20.5 billion in sales. This trounced the Wall Street forecast for EPS of $0.90 on $18.3 billion in sales. As is the case with many earnings beats this January, however, the market only seems to have cared about the negatives.

For the full year, Intel was largely flat to down in a number of its figures. Revenue only rose 1% compared with 2020, and EPS was down 2%. Margins also slipped slightly. The reason this is treated so poorly is that semiconductors have been in a supply constrained environment in the past year that has pushed up the prices of Intel’s competitors but not Intel’s apparently. This is important since the industry gossip has been for some time that Advanced Micro Devices (AMD) is beginning to steal market share from both Intel’s PC and its data centre business.

Additionally, Q4 GAAP EPS dropped about 20% YoY as the company’s PC unit saw revenue fall by 7% in that time span. Then CEO Pat Gelsinger announced that the company would be focusing on investment, which probably means that less cash is getting returned to shareholders in the form of dividends and buybacks. In the previous week, management announced a $20 billion investment in a new semiconductor foundry in Ohio.

In an interview with Yahoo Finance, Moor Insights & Strategy CEO Patrick Moorhead said, “Intel is making these huge capital investments. And at some point, those start to hit the gross margin line, and that is exactly what’s going to happen.”

Intel’s gross margin dropped more than three percentage points YoY in Q4, and management forecast that gross margin would continue dropping in the first quarter of 2022.

INTC key statistics

Intel Stock Forecast: INTC shares seeming to break below support, headed to $44

The bad news for INTC investors is that Friday’s premarket has the price breaking below support at $47.88. This level held up well in October in three separate sessions. If the stock breaks lower, longer term support sits at $44, which held strong in March 2020 during the onset of the pandemic and once again during a sell-off in October of that year. A series of lower lows over the past year also point to $44.

INTC will not seem remotely bullish until shares surpass $52. From there the target is $55.

INTC 1-day chart