Is the recent optimism on semiconductor stocks justified? Over the past few weeks the Philadelphia Semiconductor Index (SOX) has fallen risen almost 7%, while the VanEck Vectors Semiconductor ET (SMH) has gained almost 5%.
And that means Wall Street has turned positive on, among others, Intel (INTC), which has seen its stock rise more than 8% over the past few weeks. The semiconductor giant is set to report third quarter fiscal 2019 earnings results after the closing bell Thursday. Intel has topped analysts profit expectations in five of the past six quarters. There’s a good chance that another beat is in store Thursday. But the bigger story is its immediate future: More specifically, what impacts will the trade war have on Intel’s growth heading into 2020?
The company has also seen increased competition from AMD (AMD) and Nvidia (NVDA) as well as an overall downturn in the broader semiconductor industry, which relies on larger market spending cycles. But there’s still a lot to like about Intel’s long-term strength, namely the company’s strong diversification into businesses beyond the realm of PCs and servers, including its Mobileye and Internet of Things units. With the stock still down about 15% from its 52-week high, Intel looks like a strong value play ahead of Thursday’s numbers.
For the quarter that ended Septembers, the Santa Clara, Calif.-based company is expected to earn $1.22 per share on revenue of $19.01 billion. This compares to the year-ago quarter when earnings were $1.08 per share on revenue of $17.05 billion. For the full year, ending in December, earnings are expected to decline 4% year over year to $4.39 per share, while full-year revenue of $69.42 billion would decline 2% year over year.
Intel’s shares, which are up 10% year to date, have been rocky for much of 2019, reaching to 52-week low in June on the heels of lowering its forecast. Intel has been hurt from the U.S.- China trade war, which has slowed demand in the data center and memory markets. In the second quarter Intel’s revenue declined for a second straight quarter, though they topped consensus estimates, coming in at $16.51 billion, vs. the $15.70 billion expected.
Q2 revenue declined 3% from a year earlier, with weakness seen in both PC and server chip categories. The company cited trade uncertainties and supply chain disruptions. But it’s possible that Intel’s recent moves can offset any price weakness. The company continues to shift its business towards fast-growing areas such as artificial intelligence, autonomous driving and product leadership. While its datacenter business is expected to see a modest drop in revenue, Microsoft’s (MSFT) strong quarterly results suggests things might not be as bad for Intel.
The question will be with how Intel guides for the fourth quarter and full year. All told, assuming Intel beats on the top and bottom lines, this will silence the skeptics, suggesting Intel shares are ready to reclaim new highs.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.