Intel plunges 27% in premarket trading: What went wrong despite beating earnings estimates?

At 8:04 am ET on Friday, Intel shares fell 27.62% to $69.40, down $22.67 from their previous closing price of $92.07, according to CNBC. Here are the key reasons behind Intel's stock slump. Weak fourth-quarter guidance disappointed investors The biggest reason behind the selloff was Intel's revenue and earnings forecast for the next quarter. The company expects revenue of $15 billion to $16 billion in the fourth quarter of 2026.

This is below the average analyst estimate of $17.1 billion, according to data from LSEG. Intel also expects adjusted earnings of 25 cents per share, compared with analysts' expectations of 43 cents. Investors are now worried that the company's business could slow down further in the coming months. Intel's management also warned that weakness in the PC market could continue into the first half of 2027.

The weaker outlook overshadowed the company's better-than-expected third-quarter performance. Rising memory prices are hurting PC demand Another major concern is the rising cost of memory chips, which are essential components in computers and laptops. Memory chips help computers store information and run applications. When their prices increase, the cost of manufacturing PCs also rises. This makes computers more expensive for consumers and businesses, potentially reducing demand.

According to Reuters, rising memory prices have started affecting the PC market. Companies are also dealing with tighter IT budgets, which means they have less money to spend on new laptops and computers. Investors are now worried that the company's business could slow down further in the coming months (Reuters) Intel CFO David Zinsner said that rising memory costs and limited corporate IT budgets were weighing on PC demand.

The impact is already visible in Intel's results. Revenue from its Client Computing and Physical AI Group fell 5% year-on-year to $8.1 billion in the September quarter. This factor is important because PC processors remain a major part of Intel's business. Intel also expects revenue from its PC chip business to decline in the mid-20% range in the December quarter. Intel is struggling to meet demand for data centre chips Though the PC business is facing a slowdown, Intel is seeing strong demand for chips used in data centres and artificial intelligence (AI) infrastructure.

However, the company is struggling to manufacture enough chips to meet this demand. Intel's data centre and AI revenue jumped 78% year-on-year to $7.3 billion in the September quarter. The growth is being supported by rising demand for central processing units (CPUs), which help computers and servers process instructions and manage different tasks. The growing use of AI applications is creating additional demand for these processors.

However, manufacturing and component shortages have limited Intel's ability to take advantage of this opportunity. Reuters reported that supply disruptions have prevented the company from fully capitalising on growing demand for data centre chips. Intel CEO Lip-Bu Tan acknowledged the problem during the company's earnings call. "I'm disappointed that we were not able to meet strong customer demand in this quarter," Tan said in the investors call as reported by CNBC.

He added, "We face near-term challenges, including manufacturing supply shortages, the unprecedented memory crunch, and the resulting softness in PC demand." The problem is that Intel is seeing demand for its products but does not have enough supply to meet it. Explosion at Israel factory has added to manufacturing problems An explosion at Intel's manufacturing facility in Kiryat Gat, Israel, earlier in October has added to the company's problems.

The incident reportedly killed two people and seriously injured another worker. The factory was shut down for around two weeks following the incident, affecting the production of chips used in data centres. According to Intel CFO David Zinsner, the incident is expected to cost the company around $600 million in lost revenue over two quarters. The company estimates that the explosion will reduce its revenue by approximately $300 million in the December quarter.

A similar impact is expected in the March quarter. The facility primarily manufactures data centre chips using Intel's 10-nanometre manufacturing process. 88% plunge Intel has started working to restore production at the plant. However, the company is still assessing how much of the production material damaged in the explosion can be recovered. "The explosion at Kiryat Gat, one of Intel’s major manufacturing sites, is unfortunate and brought down Intel’s capacity," said Hendi Susanto, portfolio manager at Gabelli Funds, according to Reuters.

The incident has added another supply-related challenge at a time when Intel is already struggling to meet customer demand. Another major concern is the rising cost of memory chips (AI generated) Heavy investments in manufacturing are raising concerns Intel is spending billions of dollars to rebuild its chip manufacturing business and compete with major players in the semiconductor industry. The company's strategy involves expanding its manufacturing capacity and building advanced factories that can manufacture chips for other companies.

This business is known as the foundry business. Intel wants to become a major alternative to Taiwan Semiconductor Manufacturing Company (TSMC), which currently manufactures advanced chips for several global technology companies. However, building chip factories requires enormous investments, and Intel has not secured enough major external customers for its latest manufacturing technologies. According to CNBC, Intel is already producing its advanced 18A chips at its Arizona facility.

However, the company is yet to announce major external customers for these chips. Intel CEO Lip-Bu Tan said the company expects to announce a couple of customers over the next two quarters. Meanwhile, Intel CFO David Zinsner said the company does not expect to generate positive cash flow this year as it continues investing in manufacturing capacity. Intel plans to spend around $20 billion in capital expenditure this year, with spending expected to increase sharply in 2027 as it acquires more chipmaking equipment, according to Reuters.

Competition from Nvidia and AMD remains a challenge Intel is also facing intense competition from other semiconductor companies, particularly Nvidia and Advanced Micro Devices (AMD). Nvidia has become the dominant player in AI chips, particularly graphics processing units (GPUs), which are widely used to train and run AI models. AMD is also competing with Intel in the market for CPUs and GPUs. Although Intel is benefiting from growing demand for CPUs used in AI data centres, it still faces challenges in maintaining its market share.

As Reuters reported, analysts at Jefferies said the weaker revenue outlook was largely driven by softer PC demand. However, they warned that Intel could continue losing market share next year. The analysts also pointed to the challenges facing Intel's foundry business, particularly the need to secure more customers. According to analysts at Morgan Stanley, Intel faces competition from companies such as AMD, Nvidia and cloud companies developing their own processors.

Investors are questioning the AI rally Intel's stock had performed strongly before the latest earnings announcement. The company's shares had gained around 150% so far in 2026 before the earnings report, according to CNBC. However, concerns about the scale of investments in artificial intelligence and the sustainability of the AI boom had already started affecting technology stocks. Investors are increasingly looking for companies to show that their AI investments are translating into actual revenue and profits.

Intel's latest results showed that though demand for data centre chips is growing, the company is struggling with supply constraints and weakness in its traditional PC business. The disappointing forecast added to these concerns. "I think we entered earnings season with the market in a pessimistic mood. No result is good enough, and bad results receive extra punishment," Seaport Research Partners analyst Jay Goldberg said, according to Reuters.

What did Intel report in the September quarter? Regardless of the sharp fall in its shares, Intel actually reported better-than-expected third-quarter earnings. The company reported revenue of $16.51 billion, up 21% from $13.7 billion in the same quarter last year. This was slightly above analysts' estimate of $16.5 billion, according to LSEG data. Its adjusted earnings stood at 52 cents per share, compared with the analyst estimate of 40 cents.

Intel CEO Lip-Bu Tan said the company had made progress in improving its manufacturing operations and expanding supply. "Our Q3 results demonstrate improving execution, meaningful progress expanding supply and continued advancement of our process technology," Tan said in the company's earnings release. However, investors are looking beyond the September quarter. They want to see whether Intel can overcome its manufacturing problems, revive PC demand and turn its growing data centre business into sustained profits.

What we can understand is that Intel's stock crash is not about disappointing earnings. The company beat third-quarter estimates, but its weak outlook, manufacturing problems, rising component costs and expensive expansion plans have raised questions about howits turnaround can deliver results. Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a registered financial advisor in the respective jurisdiction.