Intel soars by the most in decades after crushing Q1 earnings

It’s happening. Or at least the market thinks so.

Intel shares are having their best day in nearly 30 years Friday, as the market seems to be pricing in a successful turnaround for the iconic American chipmaker after it delivered a giant earnings beat and above-expectations guidance that caught most of Wall Street flat-footed after the bell yesterday.

Shortly after the start of trading, shares were up 24%. If that gain holds through the close, it would be the biggest day for Intel since October 29, 1987, when it soared 26%. That gain was part of a rebound of smaller tech stocks that came as the Federal Reserve pushed interest rates down following the stock market crash of 1987. (The Dow Jones Industrial Average fell nearly 23% just days earlier, on October 19, 1987. )

Unlike that previous high-water mark, which was part of a broad-based recovery from a steep market crash, Intel’s outperformance Friday is all about the company’s own results.

Intel’s surge on Friday only adds to the blockbuster performance the stock has had this month. Even before Intel reported results, it was up 50% in April. As of Friday morning, it’s up more than 80% for the month, a gain that has added just shy of $200 billion to the company’s market value.

That surge in Intel’s market value has pushed key metrics like price-to-earnings multiples to nosebleed levels. In the days before Thursday’s earnings, the market was putting a 100x multiple on the stock, reflecting a level of bullish sentiment on the shares that dwarfed even the silliest moments of the dot-com bubble of the late 1990s.

That multiple compressed sharply, however, on Friday, falling to the still high level of roughly 70x expected earnings next year, as Wall Street analysts rushed to revise their earnings estimates higher after getting the latest run of Intel’s financials.

Still, at 70x expected earnings, the market is arguably pricing Intel as if CEO Lip-Bu Tan has already pulled off one of the most remarkable turnarounds in the history of Corporate America. He hasn’t yet, even if Q1 showed improvement in a number of key metrics.

But the company still faces significant challenges.

While the AI build-out is clearly consuming more CPUs — processors that act as the “brains” of servers, which sit inside the “head node” of server racks organizing activity done by other chips like Nvidia’s GPUs — Intel isn’t the only company that makes them. (Advanced Micro Devices, for example, has been gaining momentum in selling its x86 CPUs for AI.)

“There are market share pressures, as NVIDIA is moving some CPU racks from Intel to Vera, Trainium is moving head node from Intel to ARM, both TPU and Trainium are moving host node from x86 to ARM. AMD is likely to favor AMD CPUs,” Morgan Stanley analysts wrote in a note after Intel’s results. “So most of the important CPUs in AI are facing share headwinds.”

Meanwhile, Intel is still posting huge losses in the contract chip manufacturing business — known as a foundry — that it has tried to establish as a US-based competitor to industry leaders TSMC and Samsung Electronics. The segment had an operating loss of $2.44 billion in Q1.

“Foundry losses in the quarter remain stubbornly high,” Morgan Stanley wrote. “Roughly the same level as the last 4 quarters, despite top line growth. There remains an official forecast of breakeven just 7 quarters from now, which seems challenging to us.”