Intel (INTC +3.16%) stock has lost nearly half of its value in 2022 amid the broader market sell-off and the headwinds arising out of a slowdown in the personal computer (PC) space. It also lost market share to Advanced Micro Devices (AMD 4.36%). A closer look indicates that the chip giant is a perennial underperformer on the market.
Shares of Chipzilla are down 33% in the past five years. The Nasdaq-100 Technology Sector index gained 47% over the same time. Can Chipzilla turn its fortunes around in the next five years and become a stock market winner? Let's find out.
NASDAQ: INTC
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Intel's road to recovery is going to be bumpy
At its investor meeting in February 2022, Intel management pointed out that the company expects to achieve revenue growth in the mid- to high-single digits in 2023 and between 10% and 12% in 2026. However, achieving that seems like a tall order right now.
For instance, Intel was originally expecting to finish 2022 with $76 billion in revenue and $3.50 per share in earnings. But it was forced in July to reduce its guidance to a range of $65 billion to $68 billion, thanks to the shrinking PC market and the competition in data centers from AMD.
Analysts expect the results to be even worse. Consensus estimates suggest that Intel could exit 2022 with $65.5 billion in revenue, a drop of 12% over the prior year. Its earnings could drop to $2.17 per share from $5.47 per share in the prior-year period. The bad news is that Intel's top and bottom lines could remain under pressure for the next year or so.
CEO Pat Gelsinger indicated last month that Intel's data center business would grow at a slower pace than the broader market in 2023, which means that the company is on track to lose market share to AMD. Gelsinger expects Intel to start regaining data center market share from 2025 onward.
AMD controlled 13.9% share of the data center processor market in the second quarter of 2022, gaining 4.4 percentage points over the prior year. Intel held the rest of the market, but AMD has been consistently gaining share in the server-processor space, thanks to its technology advantage and Chipzilla's execution issues. And now that Intel has delayed its latest Sapphire Rapids data center processors (they won't hit the market until 2023), AMD could continue to win more share of this space.
Meanwhile, Nvidia (NVDA +0.81%) presents another challenge for Intel in the data center space with the launch of its Grace server processors next year. In May 2022, Nvidia announced that the likes of Asus, Foxconn, Gigabyte, QCT, and Supermicro will start offering server systems based on the Grace chips in the first half of 2023.
Nvidia claims the Grace CPU Superchip will be the fastest among its peers when it hits the market next year. While that claim remains to be independently tested, Intel will have more competition in the data center processor market that it's been dominating for a long time with Nvidia's foray into this space.
Regarding the client processor market that produces half of Intel's revenue and witnessed a 25% year-over-year drop in revenue last quarter, shrinking PC sales and market-share losses will continue to pose challenges for the company. IDC estimates that PC sales will decline in 2023 and the market could return to growth in 2024.
The long-term picture doesn't appear to be too bright, either. IDC estimates that the global personal-computing device market could clock annual growth of just 0.8% through 2026.
Throw in Intel's alarming share loss in the client processor market to AMD, and it's difficult to see a turnaround in Intel's largest business over the next five years. AMD was sitting on 20.6% of the desktop CPU (central processing unit) market at the end of the second quarter of 2022, while its share in notebook processors was almost 25%. Given that AMD has a solid product roadmap in the client CPU space that could help it widen the technology gap over Intel in the future, the latter may find it difficult to regain its mojo.
The chip giant doesn't look like a lucrative investment
Intel may find it difficult to hit its long-term growth targets and deliver the revenue growth it's anticipating in 2026. Analysts aren't upbeat about the company's prospects, either, projecting nearly no bottom-line growth for the next five years.
That's not surprising, given the stiff competition Intel is facing from AMD and the new threat that would arrive from Nvidia in 2023. Additionally, the slow pace of growth in the PC market isn't going to help Intel step on the gas.
All this indicates that Intel may continue to underperform the stock market over the next five years, as well. Investors looking to buy a semiconductor stock for the long run may want to look somewhere else as Chipzilla needs to pull up its socks big time to fight the multiple headwinds it's facing.
