- Intel beat estimates for the fourth quarter and gave an optimistic forecast for the first quarter of 2020.
- Business looks more challenging in the back half of the year as cloud customers pull back on their spending.
- Analysts are cautious and project big market share gains for AMD.
Not since sock puppet mania of the dot-com bubble has Intel's stock traded at such a lofty price. The shares surged 8.1% on Friday after the chipmaker beat Wall Street estimates and gave a rosy forecast for the first quarter.
But even with its stock price at the highest in almost two decades, there's plenty of reason to be cautious. Intel said on Thursday's earnings call that it will face increased competition in 2020 along with a slowdown in spending by cloud customers in the back half of the year.
"We expect total revenue to be more front-end loaded in the first half than we've seen historically," George Davis, Intel's chief financial officer, told analysts.
Intel has been suffering from supply chain problems on the PC side of its business and has been slow to develop and roll out its next-generation 10 nanometer processors, giving rival AMD an opening to gain momentum with consumer device makers as well as data center clients. Analysts at Jefferies wrote this week that Intel is at least a year behind AMD in its 10 nanometer microprocessor unit.
"Intel is giving us mixed signals," said Hans Mosesmann, an analyst at Rosenblatt Securities who recommends selling Intel shares and buying AMD. Mosesmann acknowledged that in the short term, Intel investors will like the "beat and raise" story, but he said, "if you're going to invest in a stock you want to see up and to the right and improving conditions, not worsening."
In the market for data center processors, analysts at Nomura Instinet and Mizuho Securities predict AMD's share will climb as high as 15% by year-end, up from about 5% in 2019 and 3% a year earlier. All of AMD's gains are coming at the expense of Intel, which has long dominated the server chip market.
For the fourth quarter, Intel reported earnings, excluding certain items, of $1.52 per share, topping the $1.25 average estimate, according to analysts surveyed by Refinitiv. Revenue of $20.21 billion beat the $19.23 billion average estimate.
Intel is forecasting first-quarter earnings of $1.30 per share and revenue of $19 billion, beating Refinitiv survey estimates of $1.04 in earnings and $17.19 billion in revenue. It also projected better-than-expected results for the full year, with almost all the outperformance coming in the first quarter.
Davis said on Thursday's call that cloud customers are using Intel's products as they expand, but added that after the first quarter the company expects "more modest capacity expansion for the remainder of the year" as cloud clients "move to a digestion phase."
While Intel's stock has been on a solid run, jumping 38% in the past year, AMD has been the best performer in the S&P 500 over that stretch, climbing over 140%. In 2015, the company was so distressed that the stock sank as low as $1.62. Its recent rally has been spurred by the company's growth in graphics, computing and enterprise chips.
— CNBC's Jordan Novet contributed to this report.
WATCH: Intel soars on earnings