Semiconductor giant Intel (INTC -9.20%) found itself on a rocky road in recent years. I mean, the potholes in Intel's road have potholes. Archrivals Nvidia (NASDAQ: NVDA) and Advanced Micro Devices (NASDAQ: AMD) are stealing market share from Intel in some of its strongest product categories, and the sectorwide manufacturing capacity shortage has been holding everyone back.
The company is trying every trick in the book to get back on smoother pavement. It would be a shame if this true industry titan and innovator missed out on the incredible business opportunity of a global artificial intelligence (AI) boom.
Are Intel's new ideas making a difference, or is it all downhill from here? What will the company look like by the second half of 2026?
One thing is certain: The Intel you see in three years will be radically different from the business it runs today. Here's what I mean.
Intel's current turbulence
Intel is pulling out all the stops right now. The company is investing 80 billion euros in European chip-building facilities over the next decade. An innovative funding partnership with Brookfield Asset Management (BN 1.81%) supports a $30 billion investment to upgrade Intel's manufacturing facilities in Arizona. Another $20 billion chipmaking center is under construction in Ohio.
These infrastructure improvements will not only support Intel's own manufacturing needs, but should buttress its emerging status as a leading foundry -- a manufacturer of processors for other chip companies.
It's an expensive strategy. Intel's capital expenses totaled $26.5 billion over the last four quarters, up from $14.5 billion three years ago.
INTC Capital Expenditures (TTM) data by YCharts.
Another game-changing shift
And that's not all. Intel just announced its intention to spin off its programmable solutions group (PSG) into a stand-alone company. The process will start on Jan. 1, 2024, when PSG starts to operate like an independent business under the Intel umbrella. The initial public offering that completes the separation will come in 2025 or 2026.
Don't be surprised if Intel follows up with more spinoffs and restructuring moves in the next couple of years. The time is ripe to redefine how the company runs its business, refocusing its expertise and assets on the most effective or promising ideas.
What's next for Intel?
None of this will be easy. Intel is investing billions of dollars in a radical restructuring, placing a much heavier emphasis on chip manufacturing facilities, and turning the entire business in a new direction.
The strategic shift underway was both inspired and slowed down by the ongoing global economic upheaval. Intel's recent woes have many sources, but none compares to the long-term fallout from the COVID-19 crisis. The delicate balance between supply and demand for Intel's chips (and semiconductors in general) has been kicked around for several years and may continue to be for a while longer.
Next up, I imagine that a stabilizing economy could result in a strong wave of consumer spending and soaring demand for chip-powered devices such as smartphones and electric vehicles. Intel and others are boosting their manufacturing capacity to handle this anticipated demand spike, but the timing of these types of upgrades is rarely on the nose.
Is Intel a buy today?
So it's hard to predict whether Intel's ambitious strategy shift will deliver robust profits and refreshed revenue growth over the next three years, but that's what management is aiming for. In theory, there should be no difference between theory and practice. In practice, you never can tell what's around the next corner, nor how well a company will execute on its long-term promises.
That being said, I like Intel's growing chip foundry operations. Also, the company is too experienced and asset-rich to be left behind by the roaring AI boom. So the Intel of 2026 won't look a whole lot like the company we see today, but I expect more good changes than painful mistakes. Currently trading at a modest valuation of 2.8 times sales and 20 times forward earnings projections, Intel's stock looks like a low-risk turnaround bet right now.
