Shares of


(INTC) - Get Report

took a breather Friday, as the stock pulled back despite the world's largest chipmaker boosting financial targets for the quarter.

Investors had built up the stock throughout May on hopes for a solid second quarter. Intel provided exactly that on late Thursday, but tech traders overall were opting for profit-taking rather than additional buying.

Shares recently slipped 3% to $26.87 on Friday afternoon. Peer stocks dropped as well -- the Philadelphia Semiconductor Index had shed 1.5%.

Still, Intel shares merely returned to their recent two-week trading range. With a decent second quarter now fully baked into the stock, the next catalyst will likely be the third quarter.

The last six months of the year are typically the strongest for Intel, as well as many other semiconductor companies, as it benefits from increased purchases of electronic equipment for the back-to-school and holiday shopping periods.

Intel won't release results for another six weeks or so, but the chatter on Wall Street seemed mostly positive regarding prospects for the coming months.

"I think they will provide better guidance for the full year, but I guess they'll finish out the June quarter and even get into the September quarter before that becomes more official," said Bill Gorman, vice president of equity research at PNC Advisors, a $50 billion money management firm.

He wasn't prepared to declare the third quarter would be a blowout, noting weakness in Europe that won't be helped by an upcoming month-long holiday period, but he said semiconductor companies are in good position to capture any growth that takes place now that inventories are in control.

As for Intel, he said fundamentals are heading in the right direction and that this should bode well for the stock, even with Friday's pullback. "Earnings momentum plus gross margin momentum ought to press valuations further," Gorman noted.

Margins are especially important to Intel's stock because the direction that Intel's stock travels typically holds a high correlation with margins.

At the year's start, Intel had predicted most of its gross margin improvement would occur in the third and fourth quarters. Shares wavered through the year's early months, but the company logged a surprising margin of 59.3% in the first quarter and then boosted its full-year target to 59% from 58%. Shares have run since.

During Thursday's

update, Intel boosted its margin target for the current quarter to 57% from 56%. CFO Andy Bryant declined to say whether margin strength in the current quarter would carry over into the following quarters, but Intel seems on its way to eclipsing the 60% margin level for the full year and possibly even challenging its gross margin record of 62.5% from 2000.

Margins are currently benefiting from reduced start-up costs at its factories, increasing utilization, and a product mix shift to higher-margin notebook processors.

"We believe Intel is prudently managing expectations, which could potentially result in further upside potential to estimates," said analyst Cody Acree with Legg Mason Wood Walker in a morning research note.

Likewise, analyst Jack Romaine with SG Cowen predicted an improving sales and margin outlook for the third quarter. "We believe that the stock could outperform the

S&P 500

by 20% over the next year," he said.

Legg Mason has received noninvestment banking revenue from Intel in the past year. SG Cowen intends to seek investment banking business from Intel.