Yahoo Finance Intel Investors’ Pessimism Over Turnaround Wipes Out $27 Billion of Value
(Bloomberg) -- Intel Corp.’s latest attempt to prove to investors that its turnaround strategy is on track instead spurred a $27 billion rout that further widened the gap between the chipmaker and its peers as it struggles to capitalize on investor demand for all things artificial intelligence-related.
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The company has plunged 15% since an April 2 update about its newly broken-out foundry division revealed a less-than-rosy outlook for operating losses in the unit. That’s pushed its year-to-date declines to 25%, a stark reversal from its 90% rally in 2023 and well behind strong returns from peers like Nvidia Corp. and Advanced Micro Devices Inc. It’s also become the second-worst performing stock on the Philadelphia Semiconductor Index this year, leading only Wolfspeed Inc.
Intel’s event stoked investor fears that Chief Executive Officer Pat Gelsinger’s plan is moving too slowly, putting the company at risk of falling even further behind the biggest AI winners. Missing out on the AI wave could spell disaster for the company especially as Wall Street sees it as the biggest technological advance since the internet — in an annual letter to shareholders, JPMorgan Chase & Co. CEO Jamie Dimon compared its impact with the steam engine.
“From a growth perspective, Intel’s lagging virtually all of their peers, and from a technological perspective, they’re also lagging all of their peers,” said David Wagner, a portfolio manager at Aptus Capital Advisors LLC. “Once you get caught behind the ball on the technological side of things, as soon as you lose your competitive edge, it’s so hard to get it back.”
The selloff has done little to improve Intel’s attractiveness from a valuation standpoint. The stock trades at about 24 times projected earnings over the next 12 months, compared to around 27 for the broader SOX index. Nvidia, which has surged about 500% since the start of last year, trades at roughly 34. “Investors are more than willing to pay up for growth, to pay up for technological advancements,” but Intel’s discount to Nvidia is not enough to attract investors, Wagner added.
The latest disappointment adds to investors’ concerns about the Santa Clara, California-based company. Among these is its failure to respond to the competitive threat posed by Nvidia in the lucrative data center chip market — Nvidia has taken share from Intel and now dominates in so-called artificial intelligence accelerators. There are also worries that the market for personal computer processors is becoming more crowded and isn’t returning to rapid growth.
Read More: Intel Suffers Worst Decline in Two Months on Downbeat Outlook
Intel’s top line “still depends significantly on legacy/low-growth PC and traditional server CPU markets exposed to longer replacement cycles” and competitive challenges and challenged by emerging ARM-based rivals,” Bank of America analysts led by Vivek Arya wrote in an April 3 note.
He added that Intel missed three of the most important cycles of the last decade — AI, mobile phones and using extreme ultraviolet lithography manufacturing — so it may take time before any turnaround gains credibility.
To be sure, with the backdrop of Intel and rivals like Taiwan Semiconductor Manufacturing Co. receiving US funding for chip plants, bulls see the company’s latest move as a step in the right direction.
It’s “a solid positive” affirming Intel’s push to “regain its industry leadership in both design and manufacturing,” Benchmark analysts led by Cody Acree wrote in an April 3 note, reiterating their buy rating and $62 price target.
Kim Forrest, chief investment officer at Bokeh Capital Partners LLC, said she’s adding to her Intel position as some investors misunderstand the long-term play in the move to becoming a separate foundry, a business that manufactures chips for other companies.
“They want to be a competitor to Taiwan Semi and be making hotter chips,” she said. “People were confounded that this is going to take time and that it’s not going to be very profitable at the beginning.”
Read More: Intel Calls Rout ‘Overstated’ After Worst Decline Since 2020
Still, Wall Street is largely on the sidelines, with 32 hold ratings, 11 buys and 4 sells, according to data compiled by Bloomberg. It’s a big swing from about four years ago, when it had 22 hold ratings, 21 buys and 5 sells as the onset of the pandemic spurred a flurry of PC purchases.
“We have recommended the stock twice on a sum-of-the-parts narrative in the last five years, and it ended badly both times,” Morgan Stanley analysts led by Joseph Moore wrote in an April 1 note. “This segmentation may unlock value in multiple paths, but as long as foundry and the chip business remain fully linked, we need to believe in the success of the whole, not the individual parts.”
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