Story Stocks^®

A better-than-expected performance from Intel's (INTC) struggling data center business, combined with ongoing cost-cutting actions, enabled the chip maker to surpass muted 1Q25 EPS and revenue expectations. That good news, though, is being overshadowed by a weak Q2 outlook that missed the mark on EPS and revenue, indicating that INTC's turnaround is still very much a work-in-progress. Under new CEO Lip-Bu Tan, a sense of urgency to accelerate that turnaround has emerged, as illustrated by a fresh round of restructuring actions that are designed to remove management layers, eliminate bureaucracy in order to accelerate decision-making, and reduce costs.

Accordingly, INTC also lowered its FY25 operating expense target to $17.0 bln from its prior forecast of $17.5 bln, while projecting $16.0 bln in operating expenses for FY26. The company is also looking to preserve cash and improve free cash flow by slowing fab construction and delaying non-critical investments, leading to a reduction in its FY25 capex guidance to $18.0 bln from its previous target of $20.0 bln. Investors would typically cheer cost-cutting maneuvers such as these, but since INTC is implementing the restructuring program from a position of weakness, the actions only serve to highlight the magnitude of the challenge facing INTC.

• Those challenges have been front-and-center in the Data Center & AI (DCAI) segment, where INTC's severe market share losses to NVIDIA (NVDA), Arm Holdings (ARM), and Advanced Micro Devices (AMD) have led to dismal results. Following last quarter's 3% drop, DCAI revenue grew by 8% in Q1 to $4.1 bln, easily beating expectations and providing a much-needed ray of hope. The rebound was driven by improved demand for Xeon CPUs and Gaudi accelerators, but there is a catch. During the earnings call, INTC disclosed that growth was supported by customer purchases ahead of potential tariffs, putting the sustainability of this improved demand into question.
• Earlier this year, INTC announced that production of its Clearwater Forest chip -- the company's first data center CPU on the 18A manufacturing process -- would be delayed until 1H26, providing another layer of disappointment to investors. Originally planned for 3Q25, the Clearwater Forest launch represents a pivotal moment for INTC as mass production success would validate its new process technology, potentially attracting new foundry customers. However, if the chip fails to gain significant traction, concerns surrounding INTC's loss of technology leadership will only be amplified.
• INTC also has a significant launch ahead in Client Computing Group (CCG) with Panther Lake on track for release in 2H25. Designed for PCs and laptops and also built on the 18A process, Panther Lake is expected to support a new wave of AI PC adoption, helping INTC regain momentum in the client market. It was a rough quarter for CCG with revenue falling by 8% to $7.6 bln, driven by unfavorable product mix and increased competition in the PC processor market. In addition to AMD and ARM, INTC is now contending with competitive pressures from Qualcomm (QCOM) via its Snapdragon X series processors.

INTC's Q1 results were better-than-expected, thanks to outperformance in DCAI and Foundry, but the company still faces profitability challenges and competitive pressures. Restructuring and cost-cutting are central to its 2025 strategy, while the launches of Panther Lake and, later, Clearwater Forest represent key product catalysts for future growth. Execution on advanced process nodes and Foundry customer wins will be critical to INTC’s long-term turnaround.