Intel (Nasdaq: INTC) finished 8% higher on Friday following fourth-quarter results above consensus expectations. Revenue increased by 8.3% to $20.21 billion which was above analysts' expectations of $19.2 billion. GAAP net income rose to $1.58 per share which was 20% above consensus estimates.
Another source of strength was an upgrade in the company's outlook for 2020. It's targeting 2020 revenue to reach $73.5 billion, $5 per share in net income, and 33% gross margins. All of these figures are above the upper range of analyst expectations.
Strong Chip Demand
Data center and client computing were the biggest sources of strength which more than offset weakness in Internet of Things (IoT), certain memory segments, and programmable solutions. Data center revenue increased by 19%, while cloud computing revenue was higher by 49% overall. The company is confident that the total market for its chips and demand for higher-performing products will continue to grow in the coming years especially for processing, managing, and storing data.
On a more macro level, the report signifies that chip demand remains strong despite fears that weakness in manufacturing and trade tensions would lead to lower demand. The continued strength in semiconductors is another data point that the weakness in manufacturing remains contained in the sector.
Looking Ahead
Intel's stock hit a new, all-time high on a dividend-adjusted basis. A post-earnings gap higher on an earnings beat is typically a bullish movement which leads to higher prices following weeks or months of consolidation. Post earnings announcement drift (PEAD) is a phenomenon observed and studied by academics which says that companies that announced positive earnings surprises tend to outperform the markets over the next 60 days.
Some factors behind this are that typically positive earnings surprise is not a one-time phenomenon and it signifies a company whose operations are running well in an environment of strong demand. Analyst upgrades tend to follow herd-like behavior so those come in waves as well.
So far with Intel, only a few analysts have upgraded the stock, waiting to see if the company's success was due to rising cloud computing and data center spending this quarter rather than an endurable increase. They see this quarter as a short-term peak in the company's prospects and don't expect it to reach its lofty targets. Analysts are mixed on the stock with 15 rating it a buy, 19 saying it's a hold, and 8 saying it's a sell.