With shares down 60% in 2024, Intel (INTC +10.73%) highlights the importance of diversifying your holdings in the stock market. The technology giant now trades at levels unseen since 2012 -- erasing over a decade of investor returns so far this year. But is the sell-off overblown? Let's discuss what the next 12 months could bring.
What went wrong for Intel?
Founded in 1968 and rising in prominence during the PC boom of the 1990s and 2000s, Intel was the quintessential American chipmaker. The company specializes in consumer and enterprise central processing units (CPUs), which can be considered the brain behind a computer. Like many American tech companies, it also began investing more in AI-related hardware following the release of ChatGPT in late 2022.
NASDAQ: INTC
Key Data Points
Intel seemed to have all the characteristics of a blue-chip stock. Its business was large, established, and usually profitable. However, disastrous second-quarter earnings turned this narrative upside down.
Revenue declined by around 1% year over year to $12.83 billion, which isn't the end of the world. However, management expects revenue to fall 8% in the third quarter. The bottom line was even more dismal, with net income declining from $1.47 billion to a loss of $1.65 billion, driven by weakness in Intel's foundry business, which manufactures chips.
Surprisingly, some underperformance also came from Intel's pivot to AI. While the core client computing segment (which sells chips for consumer PCs) grew 9% to $7.41 billion, the company's data center and AI segment dropped by 3% to $3.05 billion amid rising competition from rivals like Advanced Micro Devices and Qualcomm. Unlike Nvidia, which bolsters its economic moat with software solutions like Cuda, Intel seems poorly differentiated in the AI hardware market.
What could the next year bring?
Intel is failing where others are succeeding. And investors should ask if leadership is to blame. The company has been shuffling through executives quickly, which could hurt its long-term planning. CEO Patrick Gelsinger replaced Bob Swan in 2021, who replaced Brian Krzanich in 2019. After these disastrous results, Gelsinger might not last much longer. But if he does leave, he won't be the only one.
As part of its recovery strategy, Intel plans to lay off 15,000 workers and stop non-essential work to save $10 billion in costs in 2025.
Image source: Getty Images.
Cost-cutting looks like the right move. If Intel can achieve these goals, it could find itself in a much better financial position over the next 12 months -- just in time to execute growth opportunities with new AI PC chips like Lunar Lake, designed to boost battery life and performance to compete with rival Arm-based chips from Apple and Qualcomm.
Intel's lumbering foundry business will take longer to fix because the company has fallen behind Asian rivals like Taiwan Semiconductor Manufacturing in semiconductor fabrication. That said, Intel is a natural beneficiary of the U.S. government's efforts to nearshore chipmaking technology, earning massive subsidies such as almost $20 billion in CHIPS and Science Act funding this year. This support will benefit investors by helping Intel save on capital expenditures over the coming decades.
Is Intel stock a buy?
Intel looks capable of quickly stabilizing its losses and returning to growth through cost-cutting and new opportunities like AI PC chips. And over the longer term, its struggling foundry business could return to prominence with the help of significant government support.
That said, with a forward price-to-earnings (P/E) multiple of 85, Intel stock looks far too expensive to be considered a buy. Shares will likely continue to underperform over the next 12 months, and investors may want to wait before considering a position in the stock.
