Will Intel Stock Recover?

It’s been nothing short of a horrendous year for Intel Corporation (NASDAQ:INTC) which has seen its stock fall by 60% year-to-date and 44% in the last month alone.

For a former semiconductor leader with a 50-year history that has had an outsized impact on the world by developing and selling ever-more-advanced computer chips, this performance is near disastrous, particularly against the backdrop of NVIDIA’s sharp rise over the same period.

So what’s caused the decline and can Intel bounce back?

Why Did Intel Stock Fall?

At least four reasons can be cited for Intel’s poor share price performance this year. For one, in its latest earnings report, Intel posted a second-quarter loss of $1.6 billion, compared to a profit of $1.5 billion the previous year. 

The poor bottom line performance stemmed from gross margin headwinds associated with their AI PC product and higher-than-expected charges related to non-core businesses.

But the problems weren’t confined to the bottom line only and the top line slid too, falling to $12.8 billion from $12.94 billion.

Worse still, management provided disappointing guidance. They had forecasted revenues between $12.5 billion and $13.5 billion, significantly lower than analysts’ expectations of $14.3 billion. And in a real surprise, the top brass also anticipated a loss of $0.24 per share versus analysts’ forecast of a $0.03 profit.

Even cost-cutting measures did little to assuage fears. Management announced a plan to lay off 15% of its workforce as part of a $10 billion cost-savings initiative. A deeper dive perhaps reveals the reason why there are concerns because the restructuring includes reducing spending on research and development, marketing, and general administrative expenses. Or in other words key drivers of growth historically are set for the chopping block.

And then there’s the suspension of the dividend, which will eliminate demand from income-oriented investors. To improve its financial standing, Intel also decided to suspend its dividend starting in the fourth quarter of 2024.

With so many headwinds, can Intel return to a period of growth?

Can Intel Find New Growth Drivers?

Intel has plans to increase the concentration of transistors on a single package 100 billion presently to an astonishing one trillion transistors by the year 2030. 

Of course, that’s not the only goal Intel set to drive growth. The company also has ambitions to take a leap forward in integrated photonics technology for fast data movement.

The Integrated Photonics Solutions Group at Intel recently presented the first complete, integrated optical compute interconnect (OCI) chiplet that has been seen in the industry. It is packaged with an Intel CPU and works with real-time data.

This OCI chiplet allows for co-packaged optical input/output in the new AI setups used in data centers, as well as in high-performance computing and may help Intel to grow more quickly in the AI and data center markets, an emerging area with seemingly endless potential.

Other product advances include the April launch of the Gaudi 3 accelerator, which boosts performance, openness, and options in business generative AI.

In addition to these projects, Intel and Apollo Global Management (NYSE:APO) have announced a deal in which funds managed by Apollo and its partners will lead an $11 billion investment in exchange for a 49% ownership stake in a joint venture related to Intel’s Fab 34.

Fab 34 is headquartered in Leixlip, Ireland, where Intel carries out large-scale manufacturing using the latest process technologies, Intel 4 and Intel 3.

The agreement with Apollo allows Intel to recoup and reinvest a sizable portion of the $18.4 billion it spent building Fab 34. That frees up capital for the company to put into other areas of its business.

Last year, just 10% of businesses successfully moved GenAI projects into real use so Intel’s new products aim to tackle these scaling problems. 

Intel Still Has a Fortress Balance Sheet

Intel’s financial results for the most recent quarter reveal causes for concern. While revenues grew by 8.6% year-over-year in the prior quarter and 9.7% in the quarter before that, they fell by 0.9% in Q2 2024.

The $12.8 billion in revenues wasn’t enough to keep earnings before interest and taxes positive. EBIT ended up in the red to the tune of a full $1 billion.

It’s not all gloom and doom, though, for shareholders who can take solace that Intel enjoys a strong balance sheet with a war chest of $11 billion in cash and equivalents in addition to $17.9 billion in short-term investments.

Still, it can’t be ignored that the former semiconductor manufacturing leader is still saddled with a whopping debt burden of $48.3 billion.

Regardless, analysts have taken a dim view of the recent report and a full 30 analysts have downgraded their earnings forecasts for the coming quarter.

For hopeful investors, there are some areas to cling to hope.

Is Intel Profitable?

Intel appears starkly overvalued on a price-to-earnings multiple basis, trading at 87x earnings but a closer look reveals that net income is expected to rise at a rapid pace over the coming years. A full 52% annualized net income growth can be expected if analysts are right, meaning the stock actually may be cheap when forward earnings are factored in.

On a technical basis, it is also looking somewhat attractive following the recent selloff where the RSI is oversold and due a bounce. With that said, some real damage was done to bullish sentiment following the most recent downswing on the back of poor fundamentals and so it’s unlikely to return back positive in the short-term. If anything a bounce may take place but a sustained trend is somewhat improbable at this time.

Will Intel Stock Bounce Back?

It’s unlikely that Intel stock will bounce back in the near-term following the downgrade of earnings expectations for the upcoming quarter by 30 analysts.

In spite of their bearishness, however, the fair value consensus among analysts sits at $28.30 per share, suggesting as much as 31.6% upside from present levels.

It’s worth highlighting that a discounted cash flow forecast over the next 5 years reveals a more pessimistic outlook with a $16 price target.

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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.