What Happened:

Shares of computer processor maker Intel (NASDAQ:INTC) jumped 8.2% in the afternoon session after the company reported second quarter earnings that beat analysts' revenue and earnings per share (EPS) expectations. In May 2023 at a bank conference presentation, Intel management remarked that the company's Q2'23 revenue would come in at the high end of guidance. Instead, it exceeded the high end, which is a big positive for a company where there are questions about revenue stability. Management attributed the impressive topline results to the strength of the Foundry business, which grew by a whopping 307% year on year, offsetting some of the declines recorded in other segments. 

Additionally, next quarter's revenue and EPS guidance both slightly exceeded Consensus expectations. Inventory levels also improved. On the other hand, its deteriorating operating margin isn't a great sign but it's comforting that unlike last quarter, the company generated a positive adjusted operating profit. The company touched on its positioning and capabilities in the growing AI market, adding that "AI is 1 of our 5 superpowers along with pervasive connectivity, ubiquitous compute, cloud to edge infrastructure and sensing, underpinning a $1 trillion semi industry by 2030. Intel Foundry Services, or IFS, positions us to further capitalize on the AI market opportunity as well as the growing need for a secure, diversified and resilient global supply chain." 

The bullish commentary is encouraging, given that the Data Center and AI segment was down 15% year on year. Wall Street analysts also raised concerns about the segment's performance. TD Cowen analyst Matthew Ramsay added that "Headwinds remain in [Data Center and AI group] as cloud share loss, soft enterprise/China and AI spending shifts continue.". This highlighted the growing sentiment that Intel could demonstrate more strength in the AI market, which is up for grabs as tech platforms jostle for dominance and market share. Overall, the results were positive amid low expectations, and shareholders should feel optimistic.

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What is the market telling us:

Intel's shares are somewhat volatile and over the last year have had 15 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. The previous big move was 4 months ago, when the company gained 6.38% on the news that memory chipmaker, Micron, reported earnings for the latest quarter. While the results trailed the consensus estimates for revenue and operating profits, Wall Street analysts noted that the semiconductor company had faced a steeper slump than anticipated, but signs of a rebound are emerging. The outlook from the company was optimistic, with Sanjay Mehrotra, the chief executive, affirming his "confidence" in the long-term demand scenario and envisaging "gradual improvements" in the industry's supply-demand equation. The stock reaction suggests that the market puts more weight on longer-term risk/reward than near-term cyclical results.

Intel is up 37.7% since the beginning of the year, and at $36.83 per share it is trading close to its 52-week high of $39.71 from July 2022. Investors who bought $1,000 worth of Intel's shares 5 years ago would now be looking at an investment worth $771.86.

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