Intel’s Disappointing Earnings

A 17% Drop on a Poor Earnings Report

Intel has been on quite the run over the past year and a bit. I remember when I first entered my position in August 2024, it was beat down and at the lowest it had been in years (I have since then exited my position as of the time writing this article). My investment thesis at the time was based on a straightforward value proposition: the stock traded at a substantial discount to both its balance sheet and its earnings potential, especially given the company’s strategic importance to Western semiconductor manufacturing and management’s transparent efforts to address the challenges undermining its former reputation. In my opinion, the price point at the time was a cheap valuation for a company with such extensive manufacturing assets, intellectual property, market integration and strategic importance as Intel’s market capitalisation sat below $100 billion. Since then, while progress has been made in the operations of the business, the stock has truly been on an extraordinary run as government investment and support paired with semiconductor industry positive sentiment has pushed the stock to over $54 per share by the close of trading on 22 January 2026, representing a staggering gain of roughly 150% in just seventeen months and a market capitalisation of $259 billion.

Then after the market closed on the 22^nd of January, the company's shares plunged as much as 13% in after-hours trading due to its quarterly earnings report, and finished trading down 17% after the first full day of trading, erasing billions in market value and interrupting recent momentum. The fourth quarter results were solid and slightly better than expected by analysts, but future guidance by management disappointed. Intel reported fourth-quarter revenue of $13.7 billion and adjusted earnings per share of 15 cents, beating Wall Street expectations of $13.4 billion in revenue and 8 cents per share. However, guidance for the first quarter of 2026 told a troubling story. Intel projected first-quarter revenue between $11.7 billion and $12.7 billion with breakeven adjusted earnings per share, below analyst expectations. One of the core reasons for that, as CFO David Zinsner explained, is that Intel’s buffer inventory has been depleted and a wafer mix shift from client CPUs (desktop/laptop processors) to server CPUs (data centre chips) in Q3 won’t come out of fabrication until late Q1 2026. This creates a timing gap where they have no buffer stock and new production hasn’t emerged yet. In other words, Intel mispredicted customer demand. Intel incorrectly forecasted that hyperscaler customers would increase core count per server and not total server units but instead, data centre units rapidly and significantly increased in Q3-Q4 catching Intel completely off guard. Because Intel forecasted wrong, they allocated too much fab capacity to client chips (laptops/desktops) and not enough to servers. When they realised the mistake in Q3, they began shifting wafer production from client to server CPUs, but these server-focused wafers won’t exit fabrication until late Q1 2026. Meanwhile, Intel’s buffer inventory was depleted after drawing down stockpiles to meet the unexpected demand surge in H2 2025. Furthermore, while the company has depleted inventory of high-demand server chips that customers want, their production misallocation means they are potentially carrying excess inventory in slower-moving client segments or legacy products that are harder to sell. This creates an undesirable situation of too little of what the market wants and potentially too much of what it doesn’t.

While the supply constraints should be a theoretically small and solvable problem (management expects supply to improve beginning in Q2 2026), and if this were truly an isolated inventory mismatch, it would resolve in a few quarters and the business would move on. However, clearly after the recent run-up in stock price, this sudden drop demonstrates investor concern that this execution mistake, combined with years of declining performance across market share and technological abilities, may indicate unchanged deeper organisational dysfunction and an inability to capitalise on market opportunities. The fear is not about this quarter’s numbers, but whether Intel’s pattern of declining performance will continue indefinitely as competitors further capture the AI and compute market.

Intel has laid out genuinely ambitious plans for its future and has begun investing heavily in regaining both market share and technological leadership. The company has undergone significant organisational restructuring, centralising its data centre and AI businesses, streamlining operations, and recruiting new leadership talent. Intel is now shipping products on its most advanced manufacturing process, Intel 18A, making it the only manufacturer producing such sophisticated transistor technology on U.S. soil. The future roadmap includes advancing to Intel 14A with volume production targeted for 2028. On paper, Intel possesses significant advantages: extensive manufacturing capacity, deep customer relationships, formidable engineering talent, and strategic importance for Western semiconductor independence.

Yet earnings reports like this one raise the fundamental question: can Intel actually execute? The demand forecasting failure, combined with manufacturing yields that remain below industry-leading standards, falling market share in many bread and butter markets, and new products that are still dilutive to corporate gross margins, suggests that whilst progress is being made, execution still falls short in results so far. A turnaround like Intel’s was never going to be quick or easy. The semiconductor industry is inherently capital intensive, with product cycles measured in years and enormous upfront investment required for new process nodes and fabs. As a result, the true quality of decision-making and execution can only be assessed over multiple product cycles and capital deployments, meaning investors will need patience to see whether strategic initiatives and execution translate into sustainable market leadership and financial performance. In other words, despite the recent upturn and the most recent bump in the road, the truth is, no one can say for sure just how Intel will turn out in the long run just yet. The positive thesis will probably focus on something like their existing resources and clear commitment to regaining technological leadership through disciplined but ambitious investment, while the negative thesis will probably centre around something like competitors already taking market share and having momentum, combined with the deep-rooted cultural bureaucracy and mismanagement of Intel.

Intel is a case of substantial valuation uncertainty. The company’s unstable outlook makes valuing the company through any means difficult to apply with confidence. Outcomes could range from a successful turnaround justifying much higher valuations to continued competitive decline making current prices generous. For the diligent investor, Intel demands prudence and rigorous ongoing analysis. This is a bet on operational turnaround in one of the world’s most competitive industries. The resources, talent, and strategic positioning are present, but translating these advantages into consistent execution excellence remains unproven. The coming quarters will be critical in determining whether Intel’s ambitious plans can truly move beyond quotes and words and into operational reality. Until the company demonstrates reliable delivery across multiple product cycles, Intel and its stakeholders will truly be in for quite the ride.

*Disclaimer: This information is for general informational purposes only and does not constitute financial, investment, or professional advice. The author may hold positions in the assets or companies discussed.

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