After years of decline, Intel (INTC) looks positioned for a comeback. Embracing opportunities in artificial intelligence (AI), strong partnerships, and innovative products could set the stage for a revival in the company’s business and its share price. For this reason, I am bullish on INTC stock.
The Decline of INTC Stock
It may be that Intel’s stock is near a bottom after years of decline, reinforcing my bullish view. In the last five years, INTC stock has decreased 57%, making it a long-term market underperformer. This year, Intel’s stock is the second worst performer in the benchmark S&P 500 index after Walgreens Boots Alliance (WBA). The steady decline can be attributed to a series of strategic missteps on the part of Intel, and to increased competition in the semiconductor space, particularly from Nvidia (NVDA).
A big error was Intel’s delay in moving to advanced manufacturing nodes, a key metric in the semiconductor industry that determines microchip efficiency and performance. While industry players such as Taiwan Semiconductor Manufacturing Co. (TSM) and Advanced Micro Devices (AMD) were pushing ahead with more advanced chip architecture, Intel struggled to keep up with its existing 10-nanometer and seven-nanometer processes, resulting in a loss of market share.
The company also struggled with leadership instability following the departure of CEO Bob Swan in 2021 and the appointment of Pat Gelsinger, who inherited a company facing significant operational challenges. At the same time, Intel’s integrated device manufacturing (IDM) model was too slow and required too much capital expenditure compared to the fabless model adopted by Nvidia and AMD, which outsource their chip manufacturing to Taiwan Semiconductor.
Intel’s Financial Performance
While I am bullish on this semiconductor company, Intel’s Q2 2024 financial results illustrated the many challenges facing the company. Revenue for the quarter came in at $12.8 billion, a slight decrease of 1% from a year earlier. The company’s profitability was significantly lower. Gross margins dropped to 35.4% from 40% a year ago, revealing pressures from increased competition, supply chain issues, and the cost of scaling up AI investments.
Intel’s Client Computing Group (CCG) saw a modest 9% year-over-year revenue growth, fueled by its foray into AI personal computers (PCs). However, this growth was offset by other areas, such as the Data Center and AI (DCAI) business, which fell 3% year-over-year. The space is being dominated by Nvidia.
Additionally, Intel’s aggressive cost-cutting measures, including plans to reduce headcount by 15% and the suspension of its dividend payment to shareholders, show a company that’s in restructuring mode. Intel’s stock fell sharply after the company’s most recent financial results were made public.
Recovery and Outlook
Despite the challenges, there are reasons to be optimistic about Intel’s future. These include the company’s multiyear partnership with Amazon Web Services (AWS), a key development in the turnaround effort. The deal will see Intel produce custom AI chips for AWS, leveraging its advanced chipmaking process. With this partnership, Intel should gain an important foothold in the AI hardware market and potentially re-establish itself as a competitive player in the AI space.
Intel has also decided to pause its planned semiconductor plants in Germany and Poland for two years. While this may seem like a setback, it could positively impact earnings and margins in the near term. By delaying these multi-billion dollar projects, Intel is freeing up capital that can be diverted toward higher-margin opportunities, such as AI chips and custom silicon manufacturing.
Another bullish case supporting INTC stock is its earnings outlook. While the company’s earnings per share (EPS) are forecast to decline to $0.26 this year, the outlook for 2025 is much better. Revenue growth and cost-cutting measures are expected to drive EPS as high as $1.20 in Fiscal 2025. Intel’s stock can be expected to rise, provided the company continues on a path of both top and bottom-line growth.
Is INTC Stock a Buy or Sell?
Wall Street’s view of INTC stock remains mixed. Currently, 33 Wall Street analysts rate Intel a Hold. One Buy rating, 26 Hold ratings, and six Sell recommendations have been assigned to the stock in the past three months. At $26.09, the average INTC stock price target of $26.09 implies 20.48% upside potential.
If you’re wondering which analyst to follow concerning INTC stock, the most profitable analyst (on a one-year timeframe) is Toshiya Hari from Goldman Sachs (GS), with an average return of 12.34% per rating and a 68% success rate.
Read more analyst ratings on INTC stock
Takeaway
Intel has faced significant challenges, including strategic missteps, increased competition, and leadership changes. Yet, the company is positioning itself for a potential comeback by leveraging opportunities in the booming AI market, mainly through its partnership with Amazon (AMZN). At the same time, Intel’s cost-cutting measures will likely improve operational efficiency and margins. While near-term struggles persist, Intel’s attractive valuation and focus on returning to growth make me bullish on the stock.
