Intel (NASDAQ:INTC) stock appears to be caught in a catch-22, where staying competitive may come at the cost of undercutting its own manufacturing ambitions.
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TSMC currently holds the edge in chip manufacturing technology, so if Intel wants its products to stay competitive with AMD, Nvidia, and others using Arm, it makes sense to outsource some of that production to TSMC. But doing so raises a thorny issue: if Intel’s own chip division bypasses its in-house foundry, the foundry may not attract enough business to remain profitable. And without a clear plan to separate or spin off that division, the foundry risks becoming a financial drag on the broader company.
This dilemma is one of several concerns raised by Loop Capital analyst Gary Mobley, who noted that if Intel were to pivot away from its “Foundry 2.0” strategy or spin off the business entirely, it might unlock more value for shareholders.
But the challenges facing Intel go far beyond its foundry. The company’s loss of market share in the compute segment has been a slow unraveling more than a decade in the making, and reversing course won’t be easy. New CEO Lip-Bu Tan has a “short runway to work with,” especially with AMD, Nvidia, and the Arm ecosystem all continuing to gain momentum. On top of that, Intel’s large debt load – along with the financial restrictions tied to its Foundry’s “Smart Capital” program – could limit its “options for the path forward.”
Essentially, Tan is faced with the “monumental task of making Intel great again.” His job includes cutting staff to better match the company’s significantly lower revenue (about 35% below its 2020 peak), streamlining the management structure to speed up decisions, paying closer attention to customer feedback, doubling down on Intel’s “core engineering strength,” selling off non-essential parts of the business to stay focused, and strengthening the company’s balance sheet.
Against this challenging backdrop, investors are watching closely as Intel prepares to report Q2 earnings this Thursday (July 24). Mobley expects a similar tone to Q1’s report, with relatively stable CPU demand across PCs and servers helping to shape a cautiously optimistic outlook for 2025. Shipments in the first half of the year have even edged past “conservative forecasts.” That said, Intel continues to lose market share to AMD and Arm-based competitors.
“At the same time,” Mobley adds, “we see purposeful retrenchment on the part of Intel as the company is seemingly willing to get smaller before charting the path forward.”
Against this backdrop, the analyst initiated coverage on Intel with a Hold (i.e., Neutral) rating and a $25 price target, suggesting modest upside from current levels. (To watch Mobley’s track record, click here)
That cautious stance is echoed across Wall Street. Mobley is one of 26 analysts who currently rate Intel a Hold, while 4 are outright bearish, and only one sees the stock as a Buy. The average price target stands at $21.98, a ~5% below where shares trade today. (See INTC stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.