In a market led by AI, the notable underperformance in the semiconductor space this year has been Intel (NASDAQ: INTC).

While many AI-oriented chip stocks like NVIDIA have risen a lot in the year, Intel is facing a drop of just over 50% by 2024. To make matters worse, the stock has just been expelled from the market. Dow Jones Industrial Index last Friday, displaced by Nvidia itself.

Amid a tough PC market, revenue declines, and Intel’s plan to become a third-party foundry taking longer than some expected, investors have seemingly given up on the recovery. However, Intel’s recently reported third-quarter results and other recent news indicate that news of his death may be premature. Here are three reasons to believe we are heading towards 2025.

1. Third quarter results and fourth quarter guidance were reassuring

Intel had surprised investors somewhat over the summer, after it missed revenue and earnings expectations while also guiding conservatively for the third quarter.

But third-quarter results showed things aren’t falling apart. Revenue came in at $3.3 billion, down 6% year over year but well above analyst expectations of $3 billion and also above the $12.9 billion in the second quarter. While Intel’s results were affected by a series of restructurings, accelerated depreciation, and goodwill impairment charges, adding them back would have yielded adjusted results (non-GAAP) earnings per share of $0.17, much better than the loss of $0.03 per share predicted by analysts.

It was great to see better-than-feared revenue and earnings, as was Q4 guidance for revenue between $13.3 billion and $14.3 billion and positive adjusted EPS of $0.12. That guidance also beat estimates.

2. Newer products are showing success and greater profitability.

Looking under the hood, what was especially encouraging was that Intel did its best when it had just introduced new products. This seemed to demonstrate Intel’s technology and production, the most important elements of its recovery.

Specifically, while the company’s core Customers segment declined sequentially from $7.4 billion to $7.3 billion, there was a lot going on under the hood. Older Raptor Lake desktop products based on the old Intel 7 process declined, but laptop sales, boosted by the early September introduction of Intel’s new Lunar Lake chip, increased quarter over quarter. AND operating profit for the customer segment increased substantially despite the decline in revenue, indicating that newer portable products built with the latest technologies are much more profitable.

Data source: Intel Q3 and Q2 2024 press releases.

The good news on the desktop front is that Intel just launched its new desktop CPUs in October, codenamed Arrow Lake. Like Lunar Lake, the chip is actually produced by Semiconductor manufacturing in Taiwan (NYSE: TSM). But as you can see from the results in the notebook above, newer technologies are more profitable, even if they are produced by TSMC. Therefore, expect Intel’s desktop revenue and profitability to increase in the fourth quarter and into 2025.

In addition to Client, Intel also launched new Xeon 6 server products codenamed Granite Rapids and Sierra Forest over the summer on its own Intel 3 process, a newer process that uses extreme ultraviolet lithography (EUV) technology. Sierra Forest launched in June, but Granite Rapids didn’t launch until late September, limiting its impact in the third quarter. Still, Intel’s data center business improved markedly quarter over quarter, with third-quarter data center revenue up 9.9% and segment operating profit up 25.7%. with the second trimester.

3. Intel’s “bet on business” node 18A is on the right track

In addition to the good results, there was also a lot of encouraging feedback about Intel’s Node 18A, which will go into mass production in mid-2025. In September, Intel announced that it had landed Amazon (NASDAQ:AMZN) as an 18A customer, and will collaborate on an AI fabric chip as well as custom Xeon processors for Amazon Web Services. in it conference call with analystsCEO Pat Gelsinger also highlighted two other customer design wins from unnamed “computer-focused companies” for 18A.

18A is the node where Intel believes it will surpass TSMC in process technology. On the call, Gelsinger noted that Intel’s internal 18A products, Clearwater Forest for data centers and Panther Lake for PCs, have “met early 18A milestones.”

While there have been plenty of negative headlines surrounding Intel’s efforts, rumors of poor performance, and calls for Intel to break up its manufacturing and design arms, some may have missed a positive op-ed from October 25 in Fortune Magazine by former Intel CEO Craig Barrett. Barrett dismissed calls to break up Intel and praised Gelsinger’s strategy. This passage highlighted:

Keep in mind that Barrett was the CEO who succeeded Andy Grove in 1997, in Intel’s glory days before the company lost its luster in the mid-2010s. So watching him give the go-ahead to the strategy of Gelsinger and Intel’s technological progress was encouraging.

All eyes on Intel until 2025

Surely not everything was good news in the third quarter. For example, Intel’s Gaudi 3 accelerator chips had lower-than-expected uptake, as its new software required more customer learning effort than anticipated, according to Gelsinger.

But there was much more good than bad, with Intel’s technology and earnings improvements being the most notable themes. Now that the shares are only listed in book valueIntel is certainly worth a look for its risk tolerance. value investor facing 2025.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Billy Duberstein and/or its clients have positions in Amazon, Intel and Taiwan Semiconductor Manufacturing. The Motley Fool ranks and recommends Amazon, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: Short November 2024 calls for $24 on Intel. The Motley Fool has a disclosure policy.