Intel NASDAQ:INTC, a U.S. semiconductor manufacturer that produces central processing unit chips and operates a foundry business, is expected to report stronger second-quarter results after the market closes, although even a significant earnings beat may not be enough to reverse the stock's sharp July decline. Wall Street analysts expect Intel's revenue to increase 12% from a year earlier to $14.4 billion, while earnings are projected to reach 12 cents per share compared with a loss of 67 cents in the same period last year. Gross margin is expected to improve to approximately 39% from nearly 30% a year earlier. Despite these improving estimates, Intel shares have fallen about 28% in July, placing the stock among the 10 weakest performers in the S&P 500 Index after a 278% gain during the first half of the year. Matt Bryson, an analyst at Wedbush Securities, suggested that semiconductor sentiment may have a greater influence on Intel's near-term share performance than the company's reported operating results.
The broader semiconductor sector has also faced pressure, with the Philadelphia Semiconductor Index declining about 14% this month and briefly entering bear-market territory last week before recovering somewhat. Investor enthusiasm appears to be weakening as concerns increase over whether the current pace of artificial intelligence infrastructure spending can continue. Alphabet NASDAQ:GOOGL, the parent company of Google and one of the largest corporate spenders on AI, raised its expected full-year capital expenditures to between $195 billion and $205 billion from an earlier range of $180 billion to $190 billion. However, the market's reaction to Taiwan Semiconductor Manufacturing Co., the main chip manufacturer for NVIDIA NASDAQ:NVDA, may indicate that stronger forecasts are no longer sufficient to support semiconductor stocks. Taiwan Semiconductor raised its annual revenue and spending outlooks based on confidence in chip and data-center demand in 2027 and beyond, but its American depositary receipts still declined following the announcement.
Intel's report may still provide investors with several encouraging developments, including strong demand from data-center operators for the company's CPUs and possible updates on additional customers for its foundry business. Analysts are expected to watch Intel's capital expenditures for indications that the company has secured new foundry clients, while progress involving Apple NASDAQ:AAPL, the consumer technology company behind the iPhone, or Elon Musk's Terafab project could support the shares in the near term. Intel also confirmed plans to reduce jobs in its data-center group as part of an effort to lower costs. However, valuation may remain a significant obstacle, as Intel trades at approximately 74 times expected earnings over the next 12 months, compared with its 10-year average of 22 times. That valuation is also substantially higher than NVIDIA at less than 20 times forward earnings, Broadcom NASDAQ:AVGO, a semiconductor company, at 23 times, the semiconductor index at 23 times, and the S&P 500 at 20 times, suggesting that investors may require continued operational progress to justify further gains.