Will Intel Stock Ever Recover?

Intel (NASDAQ:INTC) is a rare negative story in a market that has otherwise been extremely bullish on semiconductor manufacturers in recent years.

In April of 2021, INTC shares were trading at over $62 per share. Today, the stock has dipped below $25 per share. This poor performance has come despite Intel moving to challenge Taiwan Semiconductor Manufacturing Company (TSM), the behemoth that controls around 90% of global chip production.

Can Intel bounce back from its dismal share price performance, or is America’s largest chipmaker destined to remain on the sidelines as other semiconductor companies surge?

Intel’s Ambitious Plan to Regain Traction

Though Intel has certainly been through a stagnant period, the company is executing new growth plans that could put it back on the map. Chief among these is its effort to compete with TSMC by once again making the world’s fastest chips by the end of 2025.

The company’s 18A manufacturing technology is being used to develop the kind of advanced chips necessary for AI computing. If Intel really can beat TSMC in the race for chip speed, it will give the company a much-needed boost.

Intel is also rapidly opening up its foundry business for contract manufacturing, moving away from its old business model of making chips strictly for its own applications. Earlier this year, Microsoft signed on with Intel as a customer for chip manufacturing.

Given Microsoft’s leading position in AI and the company’s plans to develop leading AI chips, this partnership has the potential to prove very valuable in the long run if Intel can achieve its goal of surpassing TSMC.

An additional tailwind in this effort will likely come from the US government’s recently finalized $7.86 billion funding agreement to help Intel increase domestic semiconductor manufacturing. The funding package has been a key effort of the Biden administration’s broader plan to reduce reliance on foreign semiconductor manufacturing.

Intel is already making large investments to bring its new growth strategy to fruition. In Q3, the company invested over $100 billion in new plant, property and equipment. This gigantic investment is likely to help put Intel back on the map, particularly as it continues to develop next-generation chips that will find demand among companies trying to get an edge in the AI space.

Revenues Fall But Investment Soaring

At the moment, Intel’s results are far from inspiring. In Q3, for instance, revenue fell 6% to $13.3 billion and the company reported a net loss of $16.6 billion. This extended a trend of falling revenues that has held in most quarters since 2020.

It’s important to remember that these results come as Intel is pouring money into its manufacturing capabilities in hopes of generating future growth.

Beyond that, the company is also implementing a $10 billion cost-cutting strategy that it hopes will make it more efficient and increase net margins going forward. While these points are important to consider, it’s still discouraging to see top-line revenues continuing to fall.

How Analysts Rate Intel?

Although Intel’s growth plan is compelling, analysts remain somewhat skeptical of the stock’s ability to rebound in the near future. More than three-quarters of the analysts covering the stock rate it as a hold, and only about one in ten rate it as a buy. In terms of price forecasts, the median target price for Intel in the upcoming 12 months is $25. This suggests an upside of less than 5% compared to the latest close of $23.98.

While Intel looks shaky over the next year, analysts are more optimistic on a longer-term basis. Over the coming five years, earnings per share are expected to grow by as much as 25% on an annualized basis. This forecast reflects Intel’s new investments paying off as demand for cutting-edge chips continues to accelerate.

Will Intel Stock Recover?

At the moment, Intel looks like a business that could have a turnaround. New investments and a market that’s hungry for advanced chips could both support the company’s future growth. The stock is also trading at quite a reasonable price. INTC shares currently trade at just 1.9x sales, 1.0x book value and 9.0x cash flow.

Management’s recent decision to restructure its foundry business as an independent subsidiary could also help. As a subsidiary, the foundry business can raise capital from outside sources in a way that it can’t right now. This could help the business grow without requiring Intel to provide all of the funding directly while also streamlining the business in the process.

Intel also offers a 2.1% dividend yield that may offer some solace to investors until the company can begin delivering growth results. Though this dividend was cut in 2023 so that the company could allocate more capital to its new plant and equipment investments, Intel’s payout is still well above the average of the S&P 500.

On the downside, buying Intel today requires a degree of speculation on the company’s ability to regain its footing and compete effectively with TSMC as a semiconductor manufacturer.

Because of TSMC’s concentration of manufacturing facilities in Taiwan, though, Intel’s biggest rival can operate at lower cost than a company hiring US labor. The government’s decision to subsidize Intel will likely offset this disadvantage, but it’s unclear whether future administrations would continue this policy.

Debt is another issue that investors have to take into account where Intel is concerned. Since the end of 2019, Intel’s long-term debt has risen from a little over $25 billion to more than $48 billion. Though Intel isn’t in any immediate danger from its debt load, it could become a problem if revenues keep falling.

At the end of the day, an eventual recovery in INTC shares definitely seems possible. Given the uncertainties, though, investors may be better off holding until it becomes clear that Intel can successfully execute on its growth promises. If it can, there will likely be enough of a growth runway left for investors to generate returns even after the recovery has begun. On Intel, a wait-and-see approach may be the best choice for now.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.