It hasn't been easy to be an investor in Intel (INTC -9.20%) over the last few years. The company was responsible for over 80% of the central processing unit (CPU) market for at least a decade, and was the primary chip supplier for Apple's MacBook lineup for years. However, Intel's dominance saw it grow complacent, leaving it vulnerable to more innovative competitors.
Advanced Micro Devices started gradually eating away at Intel's CPU market share in 2017, with Intel's share now down to 69%. Then, in 2020, Apple cut ties with Intel in favor of more powerful in-house hardware designs. Intel's stock subsequently dipped 7% over the last three years. Meanwhile, annual revenue tumbled 20%, with operating income down by 90%.
However, the fall from grace has seemingly lit a fire under Intel again. According to Mercury Research, from the second quarter of 2022 to Q2 2023, Intel clawed back 3% of CPU market share from AMD. Meanwhile, the company has pivoted its business to the burgeoning artificial intelligence (AI) market.
Intel appears to be back on a growth path. Here are three robust reasons to buy its stock in 2024.
1. Intel is gearing up to make a big splash in AI
According to Grand View Research, the AI market hit nearly $200 billion last year, and is projected to expand at a compound annual growth rate of 37% through 2030. That trajectory would see it achieve a valuation exceeding $1 trillion before the end of the decade. As a result, it's not surprising that tech firms like Intel are prioritizing AI development.
Chip stocks soared last year alongside rising excitement for AI. Nvidia took center stage, getting a headstart in the sector as it snapped up an estimated 90% market share in AI graphics processing units (GPUs), the chips necessary to train and run AI models. However, Intel is gearing up to challenge Nvidia's dominance in AI, which could see earnings soar in 2024.
In December, Intel unveiled a range of new AI GPUs called Gaudi3, designed to compete directly with Nvidia's offerings. The tech giant also announced new Core Ultra processors and Xeon server chips, which both include neural processing units meant to run AI programs faster.
2. Benefitting from a recovering PC market
Macroeconomic headwinds brought steep declines in the PC market in 2022 and for much of last year. Spikes in inflation led to reductions in consumer spending, with PC shipments tumbling 16% year over year in 2022 and continuing to fall in the first three quarters of 2023. However, a recovery finally seems to be underway, and Intel is well-positioned to profit significantly from a stronger market.
Worldwide PC shipments increased by 0.3% in the fourth quarter of 2023. Intel's recent earnings are reflecting the gradual recovery. In its Q3 2023, desktop chip sales rose 2% year over year, while its notebook segment posted a 22% increase in revenue.
During the quarter, total revenue dipped 14% year over year. However, operating income climbed 23% to $2 billion, indicating the company is on the right track and could be further boosted by PC market growth in 2024.
3. EPS estimates show major gains over the next year
Intel has a solid outlook over the next year as easing inflation continues to fuel a PC market recovery and the chipmaker expands in AI. EPS estimates align with the tech giant's growth potential in 2024 and beyond, strengthening the argument for its stock.
Data by YCharts
This chart shows that Intel's earnings could reach nearly $3 per share by fiscal 2024. Multiplying that figure by the company's forward P/E ratio of 25 yields a stock price of $68, projecting stock growth of 42% over the next fiscal year. It's a lofty target, but the goal is based on reasonable financial forecasts.
Alongside a promising AI expansion and improving PC business, Intel looks like a no-brainer buy in 2024.
