Former chip industry leader Intel (INTC -0.97%) recently announced better-than-expected third-quarter 2022 earnings. Along with its recent partial spinoff of self-driving car chip designer Mobileye, the announcement helped fuel a near 10% rally in Intel stock during the last week of October.

However, even with the post-earnings pop factored in, Intel stock is still down nearly 47% in 2022 -- and more than 65% from its all-time high reached in early 2020 before the start of the pandemic. As such, I believe it's still too early to call a bottom for Intel, let alone for a sustained rally to occur for this once-great tech manufacturing leader. 

Understand how stocks are valued

Intel gets picked on a lot these days, and for good reason. The company missed the boat multiple times in the last couple decades. For example, it declined to work with Apple early on when it was first developing the iPhone. Then, in the 2010s, it got bogged down in its chip manufacturing upgrade cycles, and eventually lost its crown as the world's largest chipmaker. Intel first lost the title to Taiwan Semiconductor Manufacturing, and then later to Samsung, as the world's largest chip company overall (as measured by annual revenue).

Once the pandemic struck and the global chip shortage started, it was boomtime for most semiconductor companies. But not for Intel, thanks to the aforementioned combination of factors that prevented it from taking advantage of unprecedented demand for PC, smartphone, and data center hardware. Shares have tanked in response as revenue first stagnated, and now Intel is in all-out retreat as a temporary oversupply in consumer electronics is bringing the industry back down to earth.

INTC Revenue (TTM) Chart

Data by YCharts.

To be fair, what has happened to Intel this year isn't completely the company's fault. The U.S. Federal Reserve is also hiking interest rates at a record pace in an attempt to fight inflation. Higher interest rates lower the value of risky assets, such as stocks, which represent an ownership stake in a business. Those same interest rates are also used in assessing the future value of a business's cash-generating potential. And Intel's future profitability is anything but certain right now, which is a double whammy against the stock when paired with rising rates.

To illustrate where things are at right now, while Intel did report better-than-expected earnings for Q3, it still downgraded its full-year 2022 outlook. Earnings per share are now expected to be $2 (previously $2.57), and free cash flow is now expected to be negative $2 billion to negative $4 billion (previously negative $1 billion to negative $2 billion).

Intel's uphill battle is just getting started

Rising interest rates are another negative for Intel if you consider what the company is trying to accomplish right now. CEO Pat Gelsinger was brought in a couple of years ago to right the ship, but fixing a myriad of issues at a sprawling manufacturer takes a long time. Gelsinger calls it the IDM 2.0 strategy (integrated device manufacturing). It involves expanding the use of external foundries to manufacture some of Intel's own chip designs, but also opening up its own foundries for the manufacturing of its "fabless" chip design peers. 

However, building a new fab, or even repurposing an existing one, takes years to complete. It also costs billions of dollars for each facility. Intel is no doubt going to get extensive help from the U.S. CHIPS Act (a $52 billion piece of legislation aimed at revitalizing U.S.-based chipmaking), but the company isn't the only one that will be applying for a slice of the pie. Even with a helping hand from Uncle Sam, Intel will have to shell out billions of dollars to pull off its IDM 2.0 reinvention of itself -- exactly at the moment financing is getting more expensive, thanks to those Fed rate hikes. 

Additionally, Intel is not an agile organization anymore. Even hampered by its own issues, it still expects to haul in at least $63 billion in sales in 2022. And as of the end of September, Intel has cash and short-term investments of $22.6 billion, more than offset by total debt of $39.5 billion. 

Gelsinger has boldly maintained that he foresees Intel retaking its technological crown by 2025. But even if it achieves that in a short two or three years, it's uncertain just how much of Intel will be left -- and how profitable that new Intel will be. After all, not only is the company losing ground on the sales front, but its profit margins are also being severely pressured as well. 

INTC Operating Margin (TTM) Chart

Data by YCharts.

I'm rooting for Intel. The world needs it and other chipmakers to strengthen global supply chains to secure the booming demand for semiconductors. But with Intel still slashing guidance and its future cash flows highly uncertain, it's still way too soon for me to feel comfortable making a purchase right now.