Intel's shares experienced a significant drop of 60% in the year 2024.
Intel's stock took a significant dip in 2024, plummeting by a whopping 60.1%, as per S&P Global Market Intelligence data. The tech giant hit a tough stretch last year, a misfortune that can be traced back several years. The company's currently navigating an ambitious, costly, and intricate strategy shift, adding to its complexities.
Intel's Rollercoaster Ride
Intel's financial performance in 2024 was a mix of hits and misses. The company frequently missed analysts' revenue and earnings targets, and the upcoming fourth-quarter report is expected to show far weaker results compared to the previous quarter.
Underlying reasons for Intel's financial weakness are multifaceted. Rival Nvidia is dominating the profitable AI market with its lucrative chip supply deals. AMD, the underdog, is capitalizing on prime opportunities such as server-grade chips and high-performance PC processors.
Moreover, some of Intel's major shareholders have lost patience with the company's lengthy and costly turnaround effort, leading to the departure of CEO Pat Gelsinger. Despite this, the company continues to incur substantial expenses, aiming to spend up to $100 billion on a five-year plan to support third-party semiconductor manufacturing services.
Given Intel's bearish stock chart and the numerous challenges it faces, the company's financial picture makes sense. It's currently being steered by an interim management team and implementing a very different business strategy.
Betting on American Dominance in Chipmaking
Yet, Intel choices an exciting growth opportunity at an opportune moment. The U.S. political climate with China adds pressure on businesses involving semiconductors, with rising costs and regulatory restrictions. However, demand for advanced chips is at an all-time high due to the generative AI revolution, high chip counts in future cars, and renewed smartphone sales.
In my opinion, Intel is well-positioned to tap into this growing demand, yet the stocks are trading at a bargain-basement price of 1.6 times sales or 20.3 times forward earnings estimates. AMD trades at a slightly lower price-to-sales ratio (8 times), while Taiwan Semiconductor is priced higher (12.9x), and Nvidia is soaring at 29.3 times sales. Intel's stock could surge several folds and still be considered undervalued in this group.
Intel's foundry division generated $4.4 billion in revenue in Q3 2024, primarily from custom chips for big tech companies like Amazon. Leveraging this approach, Intel can capitalize on the AI boom without having to design its own top-notch AI accelerators.
In essence, Intel is embarking on a promising long-term journey, but the stock is currently undervalued. Buying Intel shares now would seem like a no-brainer to me.
Intel's Challenges
Intel faces several challenges in the booming AI market, including:
- Market Share Loss
- Competition from GPUs
- Financial Difficulties
- Leadership Transition
- Regulatory Challenges
- Intense Competition
Intel's Strategic Moves
- AI Strategy
- Product Launches
- Strategic Partnerships
- Cost Optimization
- Talent Acquisition and Retention
- Adaptability and Flexibility
By implementing these strategies, Intel aims to overcome its challenges and remain competitive in the AI market.
In light of Intel's financial struggles, some investors might be hesitant about where to allocate their money. However, with the company's ambitious five-year plan costing up to $100 billion, there might be potential opportunities for investment in the finance sector related to Intel's semiconductor manufacturing services.
Despite Intel's current financial difficulties, the company's focus on AI and strategic partnerships could potentially yield significant returns in the future, making it an attractive prospect for those who are willing to invest in finance and technology.
