Intel stock (NASDAQ: INTC) has experienced a decline of about 38% since early January, while rival AMD stock has gained about 17% over the same period. While Intel’s financial performance is expected to improve this year as the PC market recovers from the post-Covid slump, investors are cautious about the company’s long-term prospects. Concerns exist about Intel’s ability to navigate the era of generative artificial intelligence and doubts about its plans to become a major foundry player.
The surge in interest in generative AI is seen as a challenge for Intel’s server business, as there is a growing demand for graphics processors over central processing units for AI workloads. Vendors like Nvidia are exploring the use of lower-powered ARM chips instead of Intel’s chips in their systems. The PC market is also facing challenges as the AI era opens doors to more competition, with companies like ARM and Qualcomm entering the space. Intel is looking to play a bigger role in the AI space with its Gaudi 2 and Gaudi 3 accelerators focused on AI workloads for data centers.
Intel is betting heavily on becoming a foundry player, producing chips for other semiconductor companies and competing with the likes of TSMC and Samsung Electronics. However, the business is facing challenges due to Intel’s missteps in wafer production outsourcing. Intel reported an operating loss of $7 billion for its manufacturing division for 2023 and doesn’t expect to break even until 2027. The company will have to catch up with competitors like TSMC in terms of manufacturing process technology, and face uneasiness from potential customers about intellectual property concerns.
Intel stock has declined by 40% from early January 2021 to around $30 currently, despite the S&P 500 increasing by about 45% over the same period. In comparison, Arista Networks has seen its stock surge by more than 300% over the same period, benefiting from the generative AI trend. Intel may benefit from the recovery in the PC market following Covid-19, with PC shipments expected to rise by 2% this year. Interest from private equity players is also a positive sign for Intel, as seen with Apollo Global Management’s $11 billion investment in Intel’s chip manufacturing plant in Ireland.
In conclusion, Intel stock is facing challenges in the AI and foundry industries but may see a boost in the near term from the recovery in the PC market. Intel’s valuation is reasonable, trading at about 28x consensus 2024 earnings and about 16x consensus 2025. The company’s strategic moves in AI and foundry business could impact its long-term prospects, and investors will be watching closely to see how Intel navigates these challenges.