Intel shares took a steep dive on Friday, plunging 29% and marking their worst single-day drop since the 1970s. This nosedive followed Intel's announcement of a forecast that fell short of expectations, which it blamed on a plant shutdown in Israel and persistent troubles in the PC market. For CEO Lip-Bu Tan, this downturn is a major hurdle in his efforts to revitalize the company.
The ripple effect of Intel's stock collapse extended beyond the company, impacting the U. S. government's 10% stake. The value of this stake tumbled by around $12 billion. Despite this setback, the investment, which began over a year ago during the Trump administration, remains in the black.
Before the earnings report on Thursday, Intel's shares had soared by roughly 150% this year, buoyed by high demand for central processors crucial for AI workloads. However, analysts at D. A. Davidson downgraded their rating from 'buy' to 'neutral, ' citing concerns over the pronounced weakness in the PC market. They pointed out that although the industry is under pressure, Intel's current valuation is hard to defend given the downturn.
Friday's market chaos wasn't confined to Intel. Amazon shares slipped 1.4% after the company reported it missed third-quarter forecasts on both revenue and profit. Even though Amazon stuck to its $220 billion capital expenditure plan for 2026, it reported negative free cash flow for the second straight quarter, with a significant increase from the previous one.
The Nasdaq Composite also saw a 2.9% drop, ending a week of lackluster tech earnings. Alphabet had its worst day on record on Thursday, with a fall of over 12%, and continued to slide on Friday. Other semiconductor companies weren't spared either: Nvidia fell 4%, Broadcom dropped more than 5%, and Qualcomm tumbled 11%.
Investor unease is growing over the hefty AI spending by tech giants and the uncertain returns on these investments. Matt Orton, chief market strategist at Raymond James, said on CNBC's 'Squawk Box Europe' that while this might not be a moment of reckoning, it's certainly a time for investors to reconsider their positions in an overcrowded market, despite strong fundamentals.
Challenges and Future Prospects
For Intel, the bleak forecast highlights the hurdles in the PC market, worsened by rising costs for memory and other components. Global PC shipments fell 4% in the second quarter compared to last year. Intel predicts adjusted earnings per share of 25 cents this quarter, with revenue between $15 billion and $16 billion, missing analysts' predictions of $17.1 billion in revenue and 43 cents EPS, according to LSEG.
The guidance also considers the fallout from an explosion at an Israeli fabrication plant earlier this month, which killed two people and seriously injured another. This incident is expected to cost Intel around $600 million in lost revenue over two quarters, according to CFO David Zinsner.
CEO Lip-Bu Tan called the explosion an 'unfortunate and tragic accident' that led to a prolonged shutdown at the plant, disrupting shipments of 10-nanometer chips. A crucial part of Tan's turnaround plan is Intel's foundry business, which has struggled to gain traction. As the only U. S.-based maker of advanced logic chips, Intel is now producing its most advanced 18A chip at its new Arizona facility, positioning itself as an alternative to Taiwan Semiconductor Manufacturing Co. The next Arizona fab is slated to be operational by the end of 2028.
Despite these advances, Intel has yet to land external customers for its new chips. Tan remains hopeful, stating that the company is making 'tremendous progress' on its upcoming 14A chips and expects to announce a couple of customers in the next two quarters.
