In a market dominated by AI, the notable underperformer in semiconductors this year has been Intel (NASDAQ:INTC).

While many AI-oriented chip stocks like Nvidia are up sharply over the year, Intel finds itself down a little over 50% for 2024. To add insult to injury, the stock has just been expelled from the market. Dow Jones Industrial Index last Friday, replaced by Nvidia itself.

Amid a tough PC market, declining revenues and Intel’s plan to become a third-party foundry taking longer than expected, investors have seemingly given up on the turnaround. However, Intel’s recently released third quarter results and other recent news indicate that the announcement of its death may be premature. Here are three reasons to believe in 2025.

1. Third quarter results and fourth quarter guidance are reassuring

Intel shocked investors somewhat over the summer, after missing both revenue and profit expectations while moving cautiously into the third quarter.

But third-quarter results showed things aren’t falling apart. Revenue was $3.3 billion, down 6% year over year, but well above analysts’ expectations of $3.0 billion and also up from 12 .9 billion dollars from the second quarter. Although Intel’s results were affected by a number of restructurings, accelerated depreciation and goodwill impairment charges, adding them back would have resulted in an adjusted result (non-GAAP) earnings per share of $0.17, much better than the loss of $0.03 per share expected by analysts.

Better-than-expected revenue and earnings were interesting to see, as was Q4 guidance for revenue between $13.3 billion and $14.3 billion and positive adjusted EPS of $0.12 . These forecasts also exceeded estimates.

2. Newer Products See Success and Higher Profitability

Looking under the hood, what was particularly encouraging was that Intel did its best where it had just unveiled new products. This appears to prove Intel’s technology and production ramp, the most important elements of its turnaround.

Specifically, while the company’s core customer segment declined sequentially from $7.4 billion to $7.3 billion, there was a lot going on under the hood. Legacy Raptor Lake desktop products based on the older Intel 7 process declined, but laptop sales, buoyed by the early September introduction of Intel’s new Lunar Lake chip, were up quarter-on-quarter. the other. And operating profit for the customer segment increased significantly despite the decline in revenue, indicating that new laptops built on the latest technologies are much more profitable.

Data source: Intel press releases Q3 and Q2 2024.

The good news when it comes to desktops is that Intel just launched its new desktop processors in October, named Arrow Lake. Like Lunar Lake, the chip is actually produced by Semiconductor manufacturing in Taiwan (NYSE:TSM). But as the notebook results above show, newer technologies are more cost-effective, even if produced by TSMC. Therefore, expect Intel’s desktop revenue and profitability to increase in the fourth quarter and through 2025.

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

3. Intel’s ‘bet the company’ node 18A is on track

In addition to the good results, there were also many encouraging comments about Intel’s Node 18A, which is scheduled for mass production by mid-2025. In September, Intel announced that it had landed Amazon (NASDAQ:AMZN) as an 18A customer, and will collaborate on an AI framework chip as well as custom Xeon processors for Amazon Web Services. On the conference call with analystsCEO Pat Gelsinger also noted two other customer design wins from unnamed “compute-centric companies” for 18A.

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

While there have been many negative headlines surrounding Intel’s efforts, rumors of poor returns, and calls for Intel to spin off its manufacturing and design businesses, some may have missed a positive opinion article from October 25 in Fortune Magazine by former Intel CEO Craig Barrett. Barrett rejected calls to break up Intel and praised Gelsinger’s strategy. This passage stood out:

Keep in mind that Barrett was the CEO who succeeded Andy Grove in 1997, during Intel’s glory days before the company lost its luster in the mid-2010s. See him endorse the strategy of Gelsinger and the technological progress of Intel was therefore encouraging.

All eyes on Intel until 2025

Of course, it wasn’t all good news in the third quarter. For example, Intel’s Gaudi 3 accelerator chips saw lower adoption than expected because its new software required more learning effort than the customer expected, according to Gelsinger.

But there were far more good than bad, with Intel’s technology and improving profits being the standout issues. The shares now only trade at book valueIntel is certainly worth a look for those who are risk-tolerant value investor by 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 hold positions at Amazon, Intel, and Taiwan Semiconductor Manufacturing. The Motley Fool holds positions and recommends Amazon, Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: Short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.