Intel reported its Q3 earnings on October 23.
During the earnings call, Intel CFO David Zinsner addressed the most critical question: How good are the yields for the company’s 18A node (manufacturing process)?
“I would say the yields are adequate to address the supply, but they are not where we need them to be in order to drive the appropriate level of margins,” Zinsner said. “By the end of next year, we’ll probably be in that space. Certainly, the year after that, I think they’ll be in what would be kind of an industry-acceptable level on the yields.”
He continued by commenting on the next-generation 14A node:
“If you look at Intel 14A in terms of its maturity relative to Intel 18A at that same point of maturity, we’re better in terms of performance and yield. We’re off to an even better start on Intel 14A.”
Here are the Intel Q3 earnings highlights:
- Revenue was $13.7 billion, up 3% year over year (YoY)
- Diluted earnings per share (EPS) attributable to Intel of $0.90
- Gross margin of 38.2%, compared to 15% in Q3 2024
- Net income of $4.1 billion, compared to a net loss of $16.6 billion in Q3 2024
The company provided an outlook for Q4 2025:
- Revenue in the range of $12.8 billion to $13.8 billion.
- Gross margin of 34.5%.
- Diluted loss per share attributable to Intel $0.14.
- Guidance excludes Altera, following the sale of a majority ownership interest completed in the Q3 of 2025.
Bank of America lowers Intel pro forma EPS estimate for 2026
Following the release of the earnings, Bank of America analyst Vivek Arya and his team updated their opinions on Intel (INTC) stock.
Analysts said that excluding Altera, Intel beat Q3 sales estimates by 4% and raised its Q4 outlook by 3% on encouraging (Windows 11 refresh) CPU demands across both PCs and servers. The company highlighted that demand exceeds supply, a trend that could continue into 2026.
The team noted Intel’s key challenges:
- Gross margin pressure: Intel’s guidance is set to 36.5% for Q4, but analysts estimate that a full-fledged EPS recovery requires a gross margin higher than 45%.
- Tough competition in both Products and Foundry.
- Subscale manufacturing with no large external customer wafer order.
- Lack of an AI accelerator.
The team lowered its pro forma EPS estimates for 2026 by 4% to $0.51 and kept its estimates for 2027 at $0.77.
“Importantly, we don’t expect a material improvement in the current unfavorable cost structure for Intel Foundry, given slow internal adoption of 18A node (peak capacity in 2030+) and foundry competition in the U.S.,” Arya said.
He explained that Intel stock, trading at a 50 multiple price-to-earnings estimate for calendar year 2027, is overvalued. Arya reiterated an underperform rating and a price target of $34, based on a 3.0 multiple of his enterprise value-to-sales ratio estimate for 2027, in line with the historical range of 1.7 to 4.
According to the team, downside risks for Intel are:
- Lower than yield/ramp at Intel Foundry, particularly for its new 18A and upcoming 14A nodes
- Lack of material external foundry customer in wafer processing
- Weaker-than-expected trends in a mature PC market, which is the largest revenue generator for Intel
- Accelerated share loss to major CPU competitors
Upside risks are:
- Key external foundry packaging/wafer deals that could significantly boost sales/utilization
- Greater-than-expected yields/ramps at 18A and upcoming 14A nodes, resulting in greater gross margin/utilization profile
- Stronger-than-expected PC market from Windows 10 refresh or AI uplift
- Geopolitical tensions boosting sentiment for domestic manufacturing assets
Bernstein analyst also thinks Intel is overvalued
Intel saw huge investments this year. But with a fortunate (for Intel) end to Windows 10 pushing people to buy new PCs, and a recent rumor that Intel is slated to manufacture Microsoft’s Maia 3 chip codenamed “Griffin” using the 18A or 18A-P process, the company has a long road ahead to recovery.
CFO’s comments on yields aren’t good news for Intel, as an industry-acceptable level of yields isn’t likely to happen anytime soon. The comment explains why most companies are reluctant to choose Intel’s fabs for manufacturing.
More Tech Stocks:
- Senior analyst lifts Palantir stock price target with a catch
- Nvidia just scored a massive AI win, but CEO Huang has regrets
- Apple’s iPhone 17 story just took an unexpected turn
- Analysts revamp Salesforce stock forecast after key meeting
Bernstein analyst Stacy Rasgon recently wrote in his note on Intel: “The real bull case right now seems to be that Trump wants the stock to go up.” He reiterated rating market-perform (equivalent to hold) with a price target of $21.
Let’s hope Intel makes a breakthrough and achieves an industry-acceptable level of yields much sooner than anticipated.
Related: Bank of America revamps IBM stock price after earnings
