INTC Earnings Surge to Support Turnaround Story, Shares Slide

anywhere free on Schwab network.com. We're back on Morning Trade live. Let's focus on the chart for Intel. Shares are down over 30% since hitting an all time high on June the 30th, but are up over 160% year to date. We saw a very nice pop post earnings and this call even heading into the open here we saw some green arrows but it has since dropped. It's down 3.5% right now. We're trading at $96 and change. Remember this was over $100 more recently. So let's talk about this earnings report that we got late yesterday because people are talking about a blowout quarter. Obviously that's why we saw that initial reaction losing some steam right now. So let's get to Jenny Horne to discuss this. I don't know when you looked at the premarket action, Jenny, you sort of thought maybe it was going to be different for Intel compared to what we've seen with other tech earnings. Maybe they did just raise the bar. They jumped over it, they somersaulted in the air and landed perfectly. But we continue to see this sell off here. Just walk us through what we learned and the reaction this morning. So what we did learn is that the biggest driver of at least the initial upside that is not held, was that they crushed expectations and raised their guidance. I mean, Intel posted their strongest revenue growth in 15 years. And perhaps that wasn't even the biggest highlight. I mean, according to several of these analysts this morning, as it seems like the overall standout was their profitability, their pro forma gross margins topped 40% for the first time since the start of 2024. Another pro forma operating margin of 17% was also the highest it's been since 2022, demonstrating the company's high fixed cost model has now pretty considerable operating leverage, so adjusted earnings nearly doubled. Estimates not even close at $0.42 a share. On an adjusted basis. Their third quarter guidance, as I mentioned, was also stronger than expected, with revenue projected between 15.8 and 16.8 billion. And of course, they did note strong AI related demand, improving yields and better manufacturing execution. Now, their CEO, Boutin, did say AI demand is driving this unprecedented demand for compute data center was also a standout, with data center revenue surging 59% year over year. While they also did cite these higher yields and improved factory efficiency with the foundry narrative, which is a critical one because it's still losing significant money. That also is continuing to improve. And so this was really, I think, helping aid those that were looking for stronger evidence that they're. 18 a manufacturing strategy is working. And so, well, all of this was positive. What did not work? We saw that they reported a GAAP loss of roughly $2.16 a share. So while much of this was driven by accounting items rather than their core business, the headline number is I mean, notable spending is also ramping again. And investors have seen Intel spend very heavily before. But the question is now is when will we start to see meaningful returns. And you could apply that to pretty much anything that reported earnings this week. But expectations were so elevated going into earnings it did seem like that execution is becoming increasingly important. And again, while that 18 a strategy is moving in the right direction, investors do still seemingly want some more evidence of that meaningful external foundry revenue and customer wins. But I will say that in spite of the about 3.6% move to the downside, the market is initially was rewarding Intel because this was one of the first quarters that we had seen that AI narrative translate into a major financial beat, rather than just expectations on like a future premise, basically. And it was really one of the strongest reports yet that we've seen. This turnaround is only continuing to gain meaningful traction. So pullback today. And again, I know that the fear was because we initially were set to open higher. Everyone I spoke with this morning was saying, you know let's wait and see where Intel closes today. I think that this is a name to monitor throughout the session. But expectations, again, we're just so high. And I think that anytime you see a lack of clarity with, again, its foundry business and some of its expense control, that's where the pressure is. But I mean, this name has been such a considerable performer this year, up 162% now on the year and still up 328% nearly over the last 12 months. I think that you take a bit of a breather in this rally and actually still higher this week, as if anything, a welcome move because we're not selling off by any means. This is not anything close to some of the moves we saw yesterday in Tesla and Alphabet. Oh, absolutely. Good. To put it in context, I think it's just a drop in the bucket given the year over year increase we've seen here. As you point out Jenny, really appreciate it. Thanks so much for the details. Let's trade Intel now with Scott Bauer, CEO of Prosper Training Academy. Good morning Scott. Happy Friday. How would you trade Intel for example purposes? Hi there. Sam and Jenny made a lot of great points there. And I think we have to let this play out because truly this was a fantastic report. Traders are treating this though as is kind of a single name earnings reaction rather than, you know, a broad chip sector catalyst. So I think because of the mood in the sector right now, because, you know, this has shifted so quickly in the entire sector to more of a cautionary stance. Intel is paying for that today. However, if that changes any time soon, I expect Intel to absolutely take off to the upside here because this is a great report. So I am buying a simple call spread going out about a month regular August expiration. Here I'm buying the 101 ten call spread for $3 or less. I'm going to let this play out. And again if that mood shifts and the market's definitely been moody, especially when it comes to the semis here. I think Intel is is going to rocket higher. All right. Good to know. A bit of a pullback there on Intel off the back of what was a very nice report. Really appreciate it Scott