Update: Intel Earnings (INTC)


  • Q2 earnings were impressive, but forward expectations are priced into the stock.
  • PC demand was encouraging but sustainability of trend is uncertain.
  • We sold long-term positions after earnings and believe top has been set.

We have been Intel (NASDAQ:INTC) fans since 2011 and sold our long-term positions in the stock following Q2 earnings. INTC beat consensus estimates handily. This brought analysts out of the woodwork with PT estimates shooting skyward. Guidance was also bright and investors were impressed.

However, valuations have priced in (and then some) much of the near-term expectations. Our primary concern is that perceptions of PC and server demand going forward may be too optimistic. IBM's new Power Architecture servers will be out soon and this could pressure INTC's dominance in the space. Enterprise refresh indicators, while encouraging, are offset by uncertainty of consumer demand. In addition, losses in mobile operations remain a challenge.

When we wrote about INTC in 2011, our view was that margin hiccups were likely temporary and the pull-back resulting from the margin blip presented a buying opportunity. The stock has had a good run, with Y-T-D returns of 30.5%. Catalysts for margin growth will be tethered to capacity utilization gains. It feels sacrilegious to step away from INTC, but when sentiment moves in a herd, it may be best to stay clear of the stampede.

The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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