JPMorgan and Bank of America downgraded their rating on Intel on the same day.
$Intel (INTC.US)$It posted third-quarter results that exceeded expectations, but its fourth-quarter guidance sent the stock plummeting. On October 30, two investment banks downgraded their ratings on the chip giant on the same day: JPMorgan maintained a neutral rating, lowering its price target from $85 to $80; Bank of America Securities cut its rating from buy to neutral and slashed its price target from $145 to $100. During today's trading session, the company's shares plunged more than 30% at one point, potentially marking the largest single-day drop on record.
Third quarter: DCAI posted its strongest quarter-over-quarter performance in 15 years.
In the September quarter, revenue totaled $16.513 billion, up 20.9% year over year, 0.7% above JPMorgan's own forecast and broadly in line with Wall Street expectations. The real highlights were the mix and profit margins: Data Center and AI (DCAI) revenue reached $7.318 billion, up 16.9% quarter over quarter and roughly 78% year over year—the strongest sequential growth in this segment in 15 years—driven by broad strength across hyperscale cloud providers, enterprises, and emerging cloud customers. JPMorgan estimates that its ASIC business grew more than 50% quarter over quarter and more than doubled year over year, with an annualized run rate of about $2.8 billion.
The profit structure has also shifted: according to JPMorgan's segment reporting, DCAI posted an operating profit of $3.039 billion with an operating margin of 41.5%, CCG reported $2.285 billion and a margin of 28.2%, while the contract manufacturing segment incurred a loss of $1.853 billion, with a margin of -27.7%.
However, Bank of America places a caveat on this strength: while data-center CPUs are indeed benefiting from the surge in demand driven by agentic AI, they remain constrained by supply bottlenecks in components such as substrates, and their product technology has yet to keep pace with rivals like AMD and ARM, whose growth rates are two to four times faster.
Intel's foundry revenue reached $6.697 billion, up 58% year over year; external foundry revenue was approximately $410 million (JPMorgan: $411 million, Bank of America: $406 million), with the quarter-over-quarter increase primarily driven by a one-time project from a non-recurring customer. The foundry segment's operating loss narrowed to $1.9 billion (compared with $2.3 billion in the same period last year). Gross margin stood at 44.1%, about 200 basis points above the market consensus of 42.1%, thanks to cost reductions and improved product mix for Intel 3 and 18A. Adjusted earnings per share were $0.52, significantly higher than the consensus range of $0.40 to $0.41.
The only weak point is the client segment: CCPG reported revenue of $8.097 billion, down 8.8% quarter over quarter, with JPMorgan noting that storage shortages have weighed on the overall market size. JPMorgan also observed that 18A client CPUs now account for roughly one-third of client revenue (compared to less than 5% in the first quarter).
On the cash front, third-quarter operating cash flow totaled $5.08 billion, capital expenditures were approximately $4 billion, and cash and equivalents stood at about $54 billion at quarter-end. During the quarter, the company neither paid dividends nor repurchased shares.
It's the fourth-quarter guidance that really sends the stock plunging.
The issue lies in the outlook. Intel's guidance for fourth-quarter revenue is $15 billion to $16 billion (with a midpoint of $15.5 billion), about 9% below the market consensus of roughly $17.05 billion; its adjusted earnings per share guidance is $0.25, well short of the consensus range of $0.43 to $0.44.
The drag came primarily from the client side: JPMorgan reported that CCPG declined by more than 20% quarter over quarter, while Bank of America estimated PC shipments fell by 25% to 30% on a quarterly basis. Management revised its outlook for the overall PC market size, projecting a 12% decline in 2026 and an additional 10% drop in 2027, and expects OEM inventory adjustments to continue through at least the first quarter of 2027. DCAI forecasts a year-over-year growth of over ten percentage points, which can only partially offset the impact.
Gross margin guidance is 38.0%, also well below the market threshold of 42.8%, down roughly 600 basis points quarter over quarter; JPMorgan said the decline was roughly split among lower production volumes diluting fixed costs, a deterioration in product mix, and the impact of Israel.
Two additional variables: Israel's Fab 28 and the inventory cycle.
The temporary shutdown of Israel's Fab 28 plant has been factored into the guidance, resulting in an approximately $300 million revenue impact in the fourth quarter and a roughly 200-basis-point hit to gross margin (primarily affecting 10-nanometer server products). JPMorgan expects a similar $300 million impact in the first quarter, but most of the write-off losses will be carried forward, allowing gross margin to rebound to around 40% in the first quarter.
Both firms share a cautiously pessimistic outlook on inventories: JPMorgan says clients are aggressively cutting inventory weeks, with the correction expected to persist through the first quarter of 2027; Bank of America, meanwhile, has extended its revised forecast to the first half of 2027.
A Year of Spending: Capital Expenditures Rise to a New Level, Free Cash Flow Turns Negative
The forward-looking investment cycle has clearly accelerated. Management stated that capital expenditures in 2027 will grow "strongly" from the 2026 baseline of $20 billion, with JPMorgan deeming over $26 billion a reasonable assumption (Bank of America's model also projects $26 billion, rising to $30.4 billion by 2028); equipment orders increased 40% quarter-over-quarter, Arizona Fab 62 is advancing at an accelerated pace, and Ohio is also exploring further acceleration.
The result is that free cash flow turns negative in 2027—but the two firms differ on the size of the shortfall: JPMorgan's model puts it at roughly negative $6.6 billion, while Bank of America's estimates it at about negative $2.6 billion. JPMorgan also notes that the $23 billion equity financing in August was explicitly positioned to support this round of capital expenditures.
OEM/ODM: Costs and yield are improving, but no external customers have yet been secured.
Progress at the execution level is a consensus between the two companies: Intel 18A costs have fallen by about 40% since the first quarter, with yields exceeding expectations; Intel 3 costs have dropped by roughly 15%; the 0.9 version of the PDK for 14A was released as scheduled in October; 18A-P is on track for a year-end launch, and "several key strategic customers" are in discussions; more than ten long-term CPU agreements have been signed, including the publicly disclosed one with Oracle (ORCL.US).
The disagreement lies in whether these are sufficient. The direct reason Bank of America lowered its rating is that the stock price "has yet to reflect adequate progress with external foundry customers." Its foundry valuation remains scenario-based—assuming Apple's M-series wafers, MediaTek's TPU packaging, Terafab's IP and packaging, and a potential ARM‑based server CPU are gradually implemented, by 2030 external wafer revenue would reach $40 billion, advanced packaging $6 billion, for a combined foundry revenue of $46 billion, corresponding to an 8% to 10% share of the roughly $380 billion wafer‑foundry market. Bank of America emphasized that it will not adjust its baseline foundry model until the transaction details of 18A‑P/14A become clear.
Target Price: JPMorgan and Bank of America employ different methodologies and timeframes.
JPMorgan's $80 price target (for December 2027) is based on a P/E multiple of roughly 25, applied to the annualized earnings per share at the time of exit in 2028: four times its Q4 2028 EPS forecast of $0.79, or $3.16. Its earnings estimates have been revised downward in tandem—revenue and EPS for 2026 have been cut from $63.3 billion/$1.58 to $61.9 billion/$1.48, and for 2027 from $77.7 billion/$2.44 to $67.2 billion/$1.68, with adjusted EPS for 2027 down by 31%.
Bank of America's $100 price target follows a different valuation approach: based on 2030 earnings per share of $5.89 (down from the previous $6.14), it applies a 20x P/E multiple and discounts it back two years at a 9% rate. Bank of America translates this target into an implied market capitalization of roughly $550 billion—about $450 billion for the product business (roughly half the market cap of Advanced Micro Devices, with some overlap in server CPUs but the latter also including a GPU segment), plus approximately $100 billion for the foundry business. Using Taiwan Semiconductor's roughly 11x P/S ratio, the $100 billion figure implies $8 billion to $10 billion in external business. The two targets differ in their time horizons and valuation anchors, so they cannot be directly compared as high or low on the same scale.
Notably, the two firms' revised 2027 earnings-per-share forecasts—$1.68 and $1.69—are very close and both fall short of the market consensus: JPMorgan cites a consensus of $2.12, while Bank of America aligns with Bloomberg's $2.12 and Visible Alpha's $2.09; for 2028, the two forecast $2.82 and $2.79, also below the consensus range of $3.19 to $3.20. JPMorgan's rationale for a neutral rating is that risk and reward are relatively balanced: since Lip-Bu Tan took over as CEO, the team's execution has indeed improved, but ongoing monitoring will be needed of the data-center CPU roadmap, the AI‑compute strategy, outreach to external foundry customers, and the backlog of ASIC design orders.
Bank of America identifies the following upside risks: major external foundry and packaging orders, better-than-expected yield ramp‑ups for 18A and 14A processes, stronger-than-expected PC demand, and geopolitical factors boosting sentiment toward domestic manufacturing. Downside risks include yields falling short of expectations, a lack of meaningful external wafer‑foundry customers, further weakness in the PC market, and an accelerated erosion of market share.
Spillover: AMD Under Pressure, Equipment Stocks Benefit
Bank of America has offered a clear cross‑sector transmission outlook: PC weakness will weigh on AMD, which is set to report earnings next week, with PC‑related headwinds totaling up to $750 million—partially offset by robust server CPU revenues exceeding $500 million. Consensus expects AMD's fourth‑quarter client PC segment to be flat, while Intel is forecast to decline 25% to 30%; however, the ramp-up of AMD's Helios/MI series could provide strong counterbalance. Intel's strong data center performance sends a positive signal to NVIDIA, Broadcom, and Marvell Technology; meanwhile, capital expenditure intentions—projected to grow through 2027 with an increasing share allocated to equipment—bode well for semiconductor equipment makers, particularly KLA Corp, Applied Materials, and Lam Research.
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