Intel's Turnaround Hinges on Execution Amid Dour Forecasts

Intel’s stock plunged 7% after hours on April 25, 2025, as investors reacted to a stark reality: CEO Lip-Bu Tan’s bold turnaround plan faces immediate skepticism. While the chip giant narrowly beat Q1 2025 earnings estimates, its guidance for the next quarter fell far short of expectations, underscoring the challenges of reviving a company struggling to keep pace in the AI race and PC market slump.

The Mixed Q1 Results

Intel reported Q1 revenue of $12.67 billion, narrowly exceeding the $12.3 billion consensus, but its adjusted EPS of 13 cents shattered expectations of just 1 cent. The net loss of $800 million, however, highlighted persistent operational challenges. Segment performance was uneven:
- Client Computing Group (CCG) revenue fell 8% to $7.6 billion, reflecting weak PC demand.
- Data Center and AI (DCAI) grew 8% to $4.1 billion, driven by Xeon sales, while Mobileye and Altera combined to add $943 million in revenue (up 47%).

The starkest warning came in guidance: Intel projected Q2 revenue of $11.2–12.4 billion (midpoint $11.8 billion), missing the $12.82 billion consensus. Adjusted EPS guidance of breakeven also fell short of estimates for 6 cents.

Tan’s Turnaround Play: Cost Cuts and Strategic Shifts

Tan, Intel’s new CEO, inherited a company in flux. His first moves include aggressive cost reductions:
- Operational expenses will drop to $17 billion in 2025 and $16 billion in 2026.
- CapEx is trimmed to $18 billion in 2025, down from a prior $20 billion target.

Structural changes are equally bold:
- Sachin Katti, a veteran of Intel’s networking division, was named CTO and head of AI, tasked with challenging NVIDIA’s dominance.
- The NEX division (Network and Edge) was merged into DCAI to streamline operations.
- Non-core assets are being sold: 51% of Altera to Silver Lake and the NAND business to SK hynix.

The Elephant in the Room: Gross Margins and Execution Risks

Intel’s Q1 gross margin dropped to 36.9% (GAAP) and 39.2% (non-GAAP), down 4-6 percentage points year-over-year. This signals rising costs and pricing pressures, particularly in the foundry and PC segments.

Tan’s promise to deliver a 18A process node by late 2025—and the first Panther Lake CPU by year-end—is critical. Past delays in transitioning to smaller nodes (e.g., 45nm and 22nm) have haunted Intel’s competitiveness.

The AI Race and Geopolitical Crosscurrents

Intel’s AI strategy hinges on competing with NVIDIA’s H100 and H800 GPUs. Katti’s appointment is a clear play to accelerate AI chip development, but execution is unproven. Meanwhile, geopolitical tensions and supply chain risks loom large, with Intel noting “elevated macroeconomic uncertainty” in its outlook.

Conclusion: A High-Stakes Gamble

Intel’s path forward is fraught with obstacles. While its Q1 results beat estimates, the Q2 guidance miss and stock decline reveal investor doubt. Key metrics to watch:
- Revenue Growth: Can DCAI and Mobileye offset CCG’s decline? DCAI’s 8% growth in Q1 is promising but insufficient without broader AI traction.
- Margin Recovery: Gross margins must stabilize to justify Tan’s cost cuts. The 2025 CapEx reduction suggests a focus on efficiency, but delays in foundry wins or 18A could derail this.
- Execution on AI: If Panther Lake and future AI chips underwhelm, Intel risks further erosion of its data center lead to AMD and NVIDIA.

The numbers tell the tale: Intel’s stock now trades at ~8x 2025E EPS (assuming breakeven in Q2 and gradual recovery), a deep discount to peers like NVIDIA (NVDA, ~17x 2025E). This implies markets are pricing in significant execution risk.

Tan’s turnaround is not just about cutting costs—it’s about proving Intel can innovate fast enough to reclaim its crown. With 2025 a make-or-break year, the next few quarters will determine whether this gamble pays off or backfires.

Data sources: Intel Q1 2025 earnings release, analyst estimates, and company statements.