Chip Stocks Q4 Earnings: Intel Sets The Tone For AMD, Nvidia

The number of companies reporting above-consensus earnings this season trails the one-year and five-year averages, according to Factset's Earnings Insight report for the week ended Jan. 19.

That said, the IT sector is reporting the third highest year-over-year earnings growth among the 11 sector classes. Semiconductor and semiconductor equipment companies are projected to report commendable 37-percent earnings growth.

This data should come as a welcome relief for traders who were unnerved by the huge losses or sharp declines in earnings reported by the financial sector.

Among chip stocks, Intel Corporation INTC, Advanced Micro Devices, Inc. AMD and NVIDIA Corporation NVDA lead the way.

Intel suffered a setback in early January when it was reported that its x86-based processor chips harbored a fundamental flaw, necessitating a revamp of the Linux and Windows kernels.

Intel is scheduled to report its financial results after the market close Jan. 25.

AMD will roll out its results after the close Jan. 30.

Nvidia's Q4 results are due after the market close Feb. 7.

Related Link: Analysts Weigh In On Intel's Security Issues

End Market Trends Stable

PC shipments rose by mid-single digits sequentially in the fourth quarter. This is in-line to slightly better than the flat-to-slight sequential decline expected by analysts. 

Original design manufacturer notebook shipments were flat compared to the previous quarter, in line with normal seasonality, Bernstein's Stacy Rasgon said in a note. Overall PC shipments were a bit better than expected.

Consensus Q4 2017 Forecasts

Intel

• EPS: 87 cents vs. 79 cents last year
• Revenue: $16.34 billion vs. last year's $16.37 billion

AMD

• EPS: 5 cents vs. a loss of 1 cent last year
• Revenue: $1.4 billion vs. last year's $1.11 billion

Nvidia

• EPS: $1.16 vs. $1.26 last year
• Revenue: $2.67 billion vs. $2.17 billion

Intel Has Near-Term Support; Bear Case A Waiting Game

Rasgon said he expects Intel's results to be in-line to slightly above-consensus. Intel's 2018 first quarter and fiscal 2018 results will likely trail expectations, although the analyst sees some upside risk to his forward revenue estimate, he said. 

Structural cracks below the surface are expected to intensify, with 2018 gross margins and capex facing risk from increased competition, missing-in-action 10 nm, tepid datacenter growth, elevated working capital levels, new potential security headwinds and a massive CEO stock sale, according to Bernstein. 

The structural bear case bubbling below the surface will become increasingly apparent over the next few quarters, Rasgon said. The stock could be pricing in some of the near-term support, the analyst said. 

"So while the bear case may be a bit of a waiting game for the moment, we remain inclined to wait it out." 

Related Link: Game On: Intel Is Targeting Nvidia And AMD's Market Share

Street Looks For Inflection At AMD

Upside to AMD's Q4 revenues is likely given the craze around cryptocurrencies, Rasgon said in the earnings preview note.

Bernstein said it's roughly in-line with the consensus expectations for AMD's Q4, but slightly above-consensus for the first quarter. Bernstein's projections for AMD in Q4 are roughly in line with the consensus, Rasgon said. 

The inflection point that could suggest AMD's new products are gaining traction and ramping has proved elusive, the analyst said. AMD's 2018 guidance will be critical — especially the outlook for gross margins, according to Bernstein. 

"We have mellowed on the stock but continue to carry a bit too much baggage to make the required leap of faith on it for now," Rasgon said. 

Intel shares are down 0.22 percent for the year-to-date period. AMD and Nvidia shares are up about 26 percent and 23.5 percent, respectively, for the same period.