The PC market experienced the worst in 20 years Q3 Can Intel (INTC.US) and AMD (AMD.US) rely on servers and AI to turn the tables?

The Zhitong Finance App learned that semiconductor giants Intel (INTC.US) and AMD (AMD.US) will release third quarter results on October 29 and November 3, respectively. According to Bernstein's latest research report, the semiconductor market is currently showing extreme polarization: the traditional PC market is experiencing the worst decline in decades, but strong demand for servers and AI businesses is enough to offset this haze.

Bernstein maintains Intel's “equal to the market” rating, with a target price of $110; maintaining AMD's “outperforming the market” rating, with a target price of $650.

Meanwhile, Wedbush released Intel's forward-looking report, which provided the market with a different valuation perspective. The agency maintains Intel's “neutral” rating and a target price of $98.

The following is a summary of the key points of the two institutions' research reports:

Macro Headwinds: PC Market Encountered an “Epic” Winter

According to the Bernstein Research Report, the PC market is experiencing a serious contraction due to the direct impact of tight memory supply and soaring prices.

Shipments plummeted: According to IDC and Gartner data, Q3 global PC shipments fell sharply by 20% to 22% year over year (far lower than the mid-single-digit decline in Q2), and also fell 9% to 14% month over month. This was the worst Q3 month-on-month performance in over 20 years.

Foundry pressure: In July, August, and September shipments from ODM notebook foundries in Taiwan fell by 24%, 38%, and 20% year-on-year, respectively.

Abnormal inventory: Bernstein observed that PC CPU shipments in the second quarter were 10.5% higher than PC unit shipments (compared to -2% in the first quarter), which indicates that there is a clear inventory backlog in the entire industry supply chain, and high memory prices are substantially undermining terminal demand.

Intel: Institutional expectations are now divided, and guidance is more critical than single-quarter results

Intel will release its earnings report on October 29th. Bernstein drastically lowered its PC business expectations for Q4 and next year, but this loss was partially offset by expectations of growth in the server business.

Bernstein expects Intel's Q3 revenue to be $16.6 billion, and earnings per share (EPS) of $0.49 billion, higher than market expectations; Q4 revenue is expected to be $16.4 billion, and EPS is $0.41 billion, lower than market expectations of $17.1 billion/0.43, mainly due to weak PC expectations.

Bernstein sorted out Intel's current “intertwined” situation:

On the positive side, the server market continues to be strong in terms of sales volume and pricing. According to the research report, customers are currently “buying regardless of product performance,” which strongly supports the company's performance. In addition, the foundry business is also progressing: the 14A 0.9 PDK is about to be launched, and the packaging business and activity at the Ohio plant are increasing, all of which are beneficial to the company's fundamentals.

In terms of adverse factors, PC clients are still facing huge headwinds. At the same time, the company's transition to new processes and the decline in production capacity for new businesses (packaging, ASIC, etc.) may put pressure on profit margins next year. Furthermore, the report anticipates that its capital expenditure may continue to exceed expectations.

Given that Intel's stock price has fallen by more than 30% in the past month, Wedbush analyst Matt Bryson believes that downside risks have basically been digested, showing a “balance between profit and loss ratio.” He believes that although Intel's Q3 performance is expected to exceed expectations due to improved server supply, due to a 20% year-on-year decline in PC shipments and rising memory and board costs, the extent of exceeding expectations may be less than in the previous quarter. He stressed that the trend of Intel's stock price will depend more on management's guidance for the fourth quarter and incremental information on 2027 expectations (especially capital expenditure). Wedbush expects Intel's fourth quarter revenue guidance to reach 17.5 billion US dollars, and EPS is $0.49, which is slightly higher than market consensus.

AMD: Server advantages are more obvious, focusing on MI450 production capacity climbing

AMD will release its earnings report on November 3. Bernstein also made similar adjustments to AMD's performance forecast (PC downgrade, server upgrade), but since AMD's dependence on the PC business is relatively low, the revision of the forecast was even smaller.

Bernstein expects AMD's Q3 revenue to be US$13.1 billion and EPS to be US$1.96, which is basically in line with market expectations; Q4 revenue is estimated to be US$15.9 billion and EPS is US$2.56, slightly lower than the market's forecast of 16.3 billion/US$2.67, which is dragged down by weak PCs.

Bernstein said that AMD is better positioned than Intel in the server field and has products that customers really want to buy. Management hinted that server sales would increase by more than 80% year over year in the second half of the year, and Bernstein thought it wouldn't be a surprise to double. Furthermore, the next generation Venice architecture's climbing capacity will bring strong growth.

The market is paying close attention to the pace at which the MI450 AI GPU is being launched. Bernstein believes that if the company successfully climbs rack production capacity, Wall Street's current expectations for AI GPUs of about 43 billion US dollars in 2027 are not aggressive. Furthermore, due to the decline in the AI business and the increase in memory/HBM prices, Bernstein prudently estimates next year's gross margin of about 54%, which is slightly lower than Wall Street's expectations.

AMD's stock price recently weakened along with the sector, but it still surged 148% during the year. Bernstein believes that the recent pullback is a buying opportunity.

The “ice and fire” of financial reports: What should investors keep an eye on?

Whether it's Intel or AMD, the upcoming earnings report will present a “double sky of ice and fire.” Based on the views of Bernstein and Wade Bush, investors should focus on the extent to which high memory prices disrupt PC demand, the sustainability of high server growth, Intel's performance guidelines for the fourth quarter and 2027 (especially capital expenditure), and the speed at which AMD MI450 production capacity is climbing and the pressure on gross margin.