Intel stock plunges more than 20% after hours on a weak forecast and a PC slowdown

The skim

• Intel beat on the third quarter: revenue rose 21% to $16.5 billion, and data center and AI sales jumped 78% to $7.3 billion.
• Its holiday-quarter forecast came in far short: $15 billion to $16 billion in revenue and 25 cents a share, versus $17.1 billion and 43 cents expected, per LSEG.
• Intel blamed a PC slowdown it expects to last at least through mid-2027, plus a deadly fab explosion in Israel. Shares fell more than 20% after hours.

What Intel reported

The quarter itself was good. Intel posted $16.5 billion in revenue, up from $13.7 billion a year earlier, and adjusted earnings of 52 cents a share, well above the 40 cents analysts expected, according to CNBC. Adjusted gross margin rose to 44.1%. The growth came from servers: data center and AI revenue climbed 78% to $7.3 billion. The PC chip group, still Intel's biggest, fell 5% to $8.1 billion and missed estimates.

Then came the outlook. Intel expects fourth-quarter revenue of $15 billion to $16 billion, so even the top of the range is below the $17.1 billion Wall Street wanted, and adjusted earnings of 25 cents a share against 43 cents expected. Its adjusted gross margin forecast drops to 38%. "We see the PC slowdown continuing at least through the first half of next year," CFO David Zinsner said.

Why it matters

PCs are getting squeezed by the same AI boom that's lifting Intel's server business. Soaring prices for memory and other parts pushed global PC shipments down 4% in the second quarter, according to Counterpoint Research figures cited by CNBC. That lands on Intel's PC chip group, which already missed estimates this quarter.

Intel also has a supply problem of its own. An explosion at its fab in Israel earlier this month killed two workers and seriously injured a third, CNBC reports. Zinsner said it will cost about $600 million in lost revenue over two quarters, and CEO Lip-Bu Tan said the "extended shutdown" hit shipments of 10-nanometer chips. Tan said he was "disappointed that we were not able to meet strong customer demand in this quarter."

The drop is steep partly because the stock had run so far. Intel shares were up about 150% this year before the report, CNBC notes, though they'd already slid about 23% in October on worries about the size of the AI buildout.

What's next

The foundry business is still the big question. Intel is in high-volume production of its 18A chips in Arizona but has no major outside customers for them yet. Tan said on the call, "We're going to have a couple of customers ready to announce the next two quarters." AMD, which also sells PC processors, reports next week, an early read on whether the PC slump is hitting the whole industry.

Sources: Intel, CNBC and AP via Yahoo Finance.