The Elephant in the Chip Room: Why Intel Stock’s Post-Earnings Pop May Be Short-Lived

Intel (NASDAQ:INTC) stock pulled back in recent weeks, but you may be confident that a rebound for Intel stock is just around the corner. Analysts walked back their forecasts leaving room for Intel to surprise the market. Promising guidance and updates on Intel’s move into AI chips could spark a post-earnings rally.

Yet while INTC could bounce back in the near-term, it may be a different story when it comes to the quarters and years ahead. Intel may be a more formidable AI contender than the market initially gave it credit, yet keep in mind that even this catalyst may fail to counter major headwinds that are likely to persist.

Intel Stock Earnings Preview

Post-market on April 25, Intel will report results for the quarter ending March 31, 2024. There is solid potential for the market to react positively to this earnings release.

After just recently disclosing big losses in 2023 for the company’s foundry unit, investors may not be too surprised if the foundry segment, which manufactures chips for “fabless” designers, reports big losses yet again for Q1 2024.

Also, as Citi’s Christopher Danely argued last week, a channel check of notebook computer shipments in March may suggest that’s not just hope and hype to believe that Intel’s results for the preceding quarter could beat sell-side consensus. Revisions to outlook or further AI chip updates could help drive a post-earnings surge for Intel stock.

Yes, Intel has already made some big AI chip announcements in recent weeks. You may recall that just two weeks prior, the company unveiled its Gaudi 3 AI accelerator chip.

This AI chip could give Nvidia’s (NASDAQ:NVDA) H100 a run for its money, in terms of speed and price.

However, further commentary by the company could indicate how quickly this new product will start making an impact on Intel’s fiscal performance.

An After-Earnings Rebound Could Prove Fleeting

A sentiment shift may be imminent for Intel stock. It’s also possible that investors are warming back up to the AI chip stocks, after a sharp sector sell-off on April 19. However, an after-earnings rebound due to these factors may prove fleeting.

Again, due to key headwinds for the company that are not going away anytime soon. For instance, headwinds related to Intel’s foundry business. Intel is spending billions to expand its foundry manufacturing capacity.

On the surface, it may appear that the ingredients are in place for this big gamble to pay off.

Namely, because not only is Intel is partially funding this expansion with U.S. Federal Government subsidies. There is a big push to “reshore” chip production, in order to reduce reliance on chips manufactured in geopolitically-vulnerable Taiwan.

Yet even if the foundry segment achieves success, this success may only take shape a few years from now.

Per CEO Pat Gelsinger, it may not be until 2030 that this becomes a profitable segment for Intel. In the meantime, further foundry losses and buildout delays could weigh on Intel’s overall performance, and on INTC stock. That’s not all. China-related risks may soon come back into focus.

Bottom Line: Wait for a Better Entry Point

Besides disheartening foundry news, there’s also been some negative China-related news for Intel over the past few weeks. U.S.-China relations keep growing tense. This may lead to further actions by the Chinese government that could decimate the tens of billions worth of annual revenue the company generates in China.

Hence, expect this factor to also weigh on shares. Although an Intel comeback is no longer as strongly priced-in as it was when INTC was trading north of $50 per share earlier this year, as the market takes the above-mentioned risks more into account, a slide back down towards Intel’s 52-week low in the mid-$20s per share is very possible.

This provides a clear takeaway. Even if you’re bullish on better times ahead for Intel stock, sit tight for now. Wait for a better entry point before buying.

On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.