What Happened?

Shares of computer processor maker Intel (NASDAQ:INTC) jumped 13% in the after-market session after the company reported impressive earnings results that revealed a strong improvement in inventory levels. The near-term forecasts were strong as next quarter's EPS guidance exceeded Wall Street's estimates, and the market seems to be cheering this. 

As for the quarter, revenue beat, and we would disregard the operating profit and EPS misses vs. Consensus expectations due to the large impairment charge. 

On the technology front, Intel's transition to Extreme Ultraviolet (EUV) is producing the anticipated efficiency gains following the introduction of the Gaudi 3 AI accelerator chip, with enhanced memory and networking bandwidth, capable of meeting the demands of large language models. 

Lastly, management noted that it is making significant progress on its plan to deliver $10 billion in cost reductions in 2025. Overall, this was a strong quarter amid low expectations.

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What The Market Is Telling Us

Intel’s shares are quite volatile and have had 18 moves greater than 5% over the last year. But moves this big are rare even for Intel and indicate this news significantly impacted the market’s perception of the business. 

The biggest move we wrote about over the last year was 3 months ago when the stock dropped 27.9% on the news that the company reported second quarter earnings results. Its revenue guidance for the next quarter missed analysts' expectations, and its revenue missed Wall Street's estimates during the quarter. Taking a closer look at the topline results, PC demand was impacted by China export controls and inventory digestion, while Server demand was affected by market share loss. Notably, the inventory-related headwinds are projected to continue till Q3, though at a more modest pace, affecting CCG (Client Computing Group) and DCAI (Data Center & AI) segments. 

In addition, the company announced plans to cut 15% of its headcount, which was over 125,000 at the end of the second quarter. Lastly, the company suspended dividend payments which is never a good sign. Overall, this quarter could have been better.

Intel is down 51.6% since the beginning of the year, and at $23.17 per share, it is trading 54.4% below its 52-week high of $50.76 from December 2023. Investors who bought $1,000 worth of Intel’s shares 5 years ago would now be looking at an investment worth $409.93.

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