Chipmaker Intel (INTC) released first-quarter guidance falling below Wall Street expectations. The stock continues to slide in Friday's pre-market trading despite reporting an all-around fourth-quarter 2023 earnings beat — posting revenue of $15.4 billion and adjusted earnings of $0.54 per share.

Citi Head of US Semiconductor Research Christopher Danely joins Yahoo Finance to discuss Intel's outlook across its segments.

"If you look at the core business for Intel, their PC and server microprocessors, that business is fine. It's just everything else... the auto business, the foundry business, that's all falling off fairly rapidly in Q1," Danely says. "That's what's causing the big guide down."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

BRAD SMITH: Christopher, great to have you here this morning. Chris, as you think back to the tenor that was struck by this executive team last night, ultimately, vastly different from what we've heard from some of the other semiconductor companies over the course of this earnings season, at least, early on and even pointing to last season as well.

CHRISTOPHER DANELY: Yeah. So there's two things going on with Intel. I think number one, is they really don't have a quote, unquote, "AI product" that's helping obviously NVIDIA, and AMD, and TSMC, and many other companies out there. That's coming out later.

But the other is I find it ironic that the main reason they guided so poorly was their quote, unquote, "growth " are not growing. And, in fact, they're contracting. If you look at the core business for Intel, their PC and server microprocessors that business is fine. It's just everything else from the programmable logic parts, the auto business, the foundry business, that's all falling off fairly rapidly in Q1. That's what's causing the big guy down.

SEANA SMITH: So Chris, when you see the market's reaction like this. The fact that shares are selling off to the extent that they are in the pre-market, do you think that move, then to the downside is justified? It sounds like it.

CHRISTOPHER DANELY: Yes. So I'm actually glad you asked that question. I've been getting that question from a lot of investors this morning. And I wanted to explain something. So there's two classes of investors for the market.

There's the mutual funds, like, Janus or Fidelity that are like an aircraft carrier that have large pools of money, but they move very slowly. And I would say not super interested in Intel right now. But then you also have hedge funds that probably make up half of the investing in my group in semiconductors.

And they can literally get in and out of stocks in a day. And what we've seen over the last couple of months is Intel stock has spiked was a lot of interest from hedge funds. But all of a sudden, if they see something that they don't like, they're all going to get out today. And they might get back into the stock in a week or a month or something like that. But I think that the volatility today is really being caused by a lot of these hedge funds that were expecting a fairly nice guide from Intel and didn't get it. So they're going to run for the hills.

BRAD SMITH: How much spending are you anticipating? Intel still needs to put forward even just to ramp up the capacity that it's going to be bringing online to produce chips.

CHRISTOPHER DANELY: Yeah. That's a good question. So historically, their amount of spending relative to sales has hovered around 17%. And this is going back like 30 years. Sometimes, they'll go to 20. Sometimes, they'll go to 15. They're essentially doubling that for the next three or four years.

And as a result, you're also seeing a big increase in depreciation. This is something they mentioned on the call last night. Their depreciation, which actually weighs on gross margin, is going up $2 billion this year. It's also going to go up next year. And it's also going to go up the year after that.

And I think the big disappointment was not necessarily on the revenue forecast, but was on the gross margin forecast. And I think that's a direct result of all of this increase investment, which is not going away anytime soon.