Intel (INTC -9.20%) was once the world's largest chipmaker. But today, it's only worth $180 billion, while its rival Advanced Micro Devices (AMD 2.37%) is valued at $310 billion. Meanwhile, Nvidia (NVDA 6.18%) has catapulted ahead of both, with a market cap of $2.2 trillion.
Intel is still the world's largest producer of x86 CPUs for PCs and servers, but a series of missed opportunities, production blunders, and poor decisions drove away its customers and investors. Over the past five years, Intel's stock declined more than 20%, while shares of AMD and Nvidia surged 720% and 1,970%, respectively.
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Can Intel get its act together by the end of the decade and become a trillion-dollar chipmaker? Or is it destined to be left in the dust as the semiconductor market expands and evolves?
What happened to Intel?
Intel made three massive mistakes over the past decade. First, it failed to extend its leadership in the PC and data center markets to the mobile market. Instead of licensing Arm's (ARM 4.11%) designs to make more power-efficient CPUs for phones, it stubbornly shrank down its PC-oriented x86 CPUs for mobile devices. Those chips were poorly received, and Arm-based chips eventually took over 95% of the smartphone market.
Second, Intel's own foundries fell behind Samsung and Taiwan Semiconductor Manufacturing (TSM 1.26%) (commonly called TSMC) in the process race to make smaller, denser, and more power-efficient chips. As it lost its process lead, AMD -- which outsourced its production to TSMC -- pulled ahead of Intel with cheaper and more power-efficient chips. Intel's own delays and shortages also drove many of its longtime PC partners to adopt AMD's chips.
According to PassMark Software, Intel's share of the x86 CPU market plunged from 82% to 61% between the fourth quarters of 2016 and 2023. AMD doubled its share from 18% to 36%, with gains across the desktop, laptop, and server markets.
Finally, Intel didn't recognize the potential uses of discrete GPUs in AI applications. Back in 2009, Intel stopped producing its own discrete GPUs and focused on producing integrated GPUs for lower-end PCs. That retreat enabled Nvidia and AMD to establish a duopoly in discrete GPUs, which eventually evolved from gaming chips into crucial AI chips for data centers. Intel finally returned to the discrete GPU market in 2020, but JPR estimates it only has about a 1% share.
As Intel struggled, it went through three CEOs over the past six years. It also prioritized divestments, cost-cutting measures, and buybacks over making smart investments. From 2018 to 2023, Intel's annual revenue declined from $70.8 billion to $54.2 billion as its adjusted EPS plummeted from $4.58 to $1.05.
What's next for Intel?
Intel's newest CEO, Pat Gelsinger, took the helm in 2021. Instead of cutting costs, Gelsinger drove Intel to ramp up its spending to catch up to TSMC and Samsung.
To accomplish that, Intel poured billions of dollars into expanding its first-party foundries. It bought more of ASML's (ASML 2.04%) extreme ultraviolet (EUV) lithography systems to produce smaller and denser chips, and it even adopted ASML's newest high-NA EUV systems -- which cost $350 million apiece -- before TSMC and Samsung.
Intel also opened up its foundries to third-party fabless chipmakers to directly compete against TSMC and Samsung in the contract chipmaking market. Its foundry services business has already secured about $15 billion in third-party deals so far, and the company claims its can overtake TSMC and Samsung in the process race by 2025.
That sounds like a lofty goal, but Intel's efforts are also being backed by tens of billions of dollars in government subsidies in the U.S. and Europe. If that support propels Intel ahead of TSMC, it could make more advanced chips than AMD again -- and it could finally claw back some of its market share across the PC and server markets.
But will it become a trillion-dollar stock by 2030?
Intel needs to significantly ramp up its spending to catch up to TSMC, but it expects the arrival of new AI-oriented PCs, higher average selling prices for its newest PC and server chips, and tighter cost-cutting measures to offset that pressure.
Over the long term, Intel aims to grow its adjusted gross margin from 44% in 2023 to 60% and expand its adjusted operating margin from 9% to 40%. Those are ambitious targets, but analysts expect adjusted EPS to increase by 28% in 2024 and 67% in 2025 as it upgrades its plants and economies of scale kick in.
If Intel turns around its business, meets Wall Street's expectations, and boosts its bottom line at a steady compound annual growth rate (CAGR) of 25% from 2025 to 2030, its adjusted earnings could climb to $6.85 per share by the final year. Assuming it trades at a reasonable 25 times forward earnings by then, its stock could be around $170, which would represent a near-300% gain from its current levels. However, that rally would only boost its market cap to $720 billion. So even if the best-case scenario plays out, Intel would likely fall short of joining the four-comma club by 2030.
