PC market suffers worst Q3 in 20 years: Can Intel Corporation (INTC.US) and AMD (AMD.US) turn things around with servers and AI?

Title context: PC market suffers worst Q3 in 20 years: Can Intel Corporation (INTC.US) and AMD (AMD.US) turn things around with servers and AI? Text: Semiconductor giants Intel Corporation (INTC.US) and AMD (AMD.US) will report third-quarter results on October 29 and November 3, respectively. A latest research note from Bernstein points out that the semiconductor market is currently showing extreme polarization: the traditional PC market is suffering its worst downturn in decades, but strong demand from server and AI businesses is enough to offset this gloom. Bernstein maintains its "Market Perform" rating on Intel Corporation with a price target of US$110; it maintains its "Outperform" rating on AMD with a price target of US$650. Meanwhile, Wedbush released a preview report on Intel Corporation, offering the market a different valuation perspective. The firm maintains its "Neutral" rating and US$98 price target on Intel Corporation. Below are the core points from the two firms' research notes: Macro headwinds: PC market hits an "epic" winter Bernstein's note points out that, under the direct impact of tight memory supply and soaring prices, the PC market is undergoing severe contraction. Shipments plunge: According to IDC and Gartner data, Q3 global PC shipments fell sharply by 20% to 22% year on year (far worse than the mid-single-digit decline in Q2), and also fell 9% to 14% quarter on quarter. This is the worst Q3 sequential performance in more than 20 years. ODMs under pressure: Taiwan-based ODM notebook manufacturers saw shipments fall 24%, 38%, and 20% year on year in July, August, and September, respectively. Abnormal inventory: Bernstein observed that Q2 PC CPU shipments were 10.5% higher than PC finished-product shipments (versus -2% in Q1), indicating obvious inventory buildup across the industry supply chain, with high memory prices materially damaging end demand. Intel Corporation: Institutions diverge in expectations, guidance more critical than single-quarter results Intel Corporation will release earnings on October 29. Bernstein sharply cut its PC business expectations for Q4 and next year, but this loss is offset by growth expectations for the server business. Bernstein expects Intel Corporation Q3 revenue of US$16.6 billion and earnings per share (EPS) of US$0.49, above market expectations of US$16.5 billion/US$0.40; it expects Q4 revenue of US$16.4 billion and EPS of US$0.41, below market expectations of US$17.1 billion/US$0.43, mainly due to weak PC expectations. Bernstein sorted out Intel Corporation's current "mixed bullish and bearish" situation: On the positive side, the server market remains strong in both volume and pricing. The note points out that customers are currently "buying regardless of product performance," which is strongly supporting the company's results. In addition, the foundry business is also making progress: the 14A 0.9 PDK is about to launch, and activity in the packaging business and the Ohio plant is increasing, all of which bring favorable factors to the company's fundamentals. On the negative side, the PC client segment still faces huge headwinds. At the same time, the company's transition to new processes and the ramp-up of new businesses (packaging, ASIC, etc.) may pressure margins next year. In addition, the note expects its capital expenditure may continue to exceed expectations. Given that Intel Corporation's stock price has fallen more than 30% in the past month, Wedbush analyst Matt Bryson believes downside risk has largely been digested, showing a "risk-reward becoming balanced" situation. He believes that although Intel Corporation's Q3 results are expected to beat expectations, driven by improved server supply, the magnitude of the beat may be smaller than in the previous quarter due to PC shipments falling about 20% year on year and rising memory and substrate costs. He stressed that Intel Corporation's stock price movement will depend more on management's guidance for the fourth quarter and incremental information on 2027 expectations (especially capital expenditure). Wedbush expects Intel Corporation's fourth-quarter revenue guidance to reach US$17.5 billion and EPS of US$0.49, slightly above market consensus. AMD: More obvious server advantage, focus on MI450 capacity ramp-up AMD will release earnings on November 3. Bernstein made similar adjustments to its AMD forecasts (cutting PC, raising servers), but because AMD's reliance on the PC business is relatively lower, the magnitude of its forecast revisions is also smaller. Bernstein expects AMD Q3 revenue of US$13.1 billion and EPS of US$1.96, basically in line with market expectations; it expects Q4 revenue of US$15.9 billion and EPS of US$2.56, slightly below market expectations of US$16.3 billion/US$2.67, dragged down by PC weakness. Bernstein said AMD is better positioned than Intel Corporation in servers, with products customers really want to buy. Management hinted that second-half server sales will grow more than 80% year on year, and Bernstein said it would not be surprised by a doubling. In addition, the capacity ramp-up of the next-generation Venice architecture will bring strong growth. The market is highly focused on the launch pace of the MI450 AI GPU. Bernstein believes that if the company can smoothly achieve rack capacity ramp-up, Wall Street's current expectation of about US$43 billion for 2027 AI GPUs is not aggressive. In addition, affected by the AI business ramp-up and rising memory/HBM prices, Bernstein prudently estimates next year's gross margin at about 54%, slightly below Wall Street expectations. AMD's stock price has recently weakened along with the sector, but is still up 148% year to date, and Bernstein believes the recent pullback is a buying opportunity. The "fire and ice" of earnings: What should investors watch closely? Whether Intel Corporation or AMD, the upcoming earnings reports will present a "fire and ice" situation. Combining the views of Bernstein and Wedbush, investors should focus on the earnings calls on: the degree to which high memory prices are damaging PC demand, the sustainability of high server growth, Intel Corporation's guidance for the fourth quarter and 2027 (especially capital expenditure), and the pace of AMD MI450 capacity ramp-up and gross margin pressure.