This has turned out to be a terrible year for Intel (INTC +1.07%) investors so far, as shares of the chipmaker have crashed 60% in 2024, and the stock's decline was exacerbated by its second-quarter 2024 (ended June 29) results released on Aug. 1.
Intel investors were in for a rude shock, as the stock fell 26% in a single day following its quarterly report. This sharp sell-off was triggered by Intel's big bottom-line miss, poor guidance, the suspension of its dividend, and upcoming layoffs. So Intel stock's dive following its recent results seems justified. However, the stock has a median 12-month price target of $25 per 45 analysts covering Intel, which points toward a 25% jump from current levels.
NASDAQ: INTC
Key Data Points
But can Intel stock really deliver such gains in the coming year in light of the challenges that it is facing? Let's find out.
Intel's failure to put up a fight in key markets doesn't bode well for its future
A closer look at Intel's second-quarter results and comparing them with rival Advanced Micro Devices (AMD +3.50%) will make it clear that the company is missing out on huge growth opportunities.
For instance, Intel's revenue from the client computing group (CCG) increased only 9% year over year in Q2 to $7.4 billion. That was in stark contrast to the terrific 49% year-over-year increase in AMD's client segment revenue during the comparable quarter to $1.5 billion. Intel and AMD's client segments cater to the notebook and desktop CPU (central processing unit) markets.
It is worth noting that the PC market is in revival mode of late thanks to the emergence of artificial intelligence (AI)-enabled computers, which market research firm Canalys believes could clock 44% annual growth between 2024 and 2028. Intel's performance, however, indicates that it is probably missing out on the AI PC boom while rival AMD is winning a bigger share of the overall market.
This is evident from the latest market share numbers from Mercury Research. AMD gained 3.6 percentage points of market share in desktop CPUs in the second quarter of 2024 from the year-ago period at Intel's expense. Meanwhile, AMD's share of the notebook CPU market increased by 3.8 percentage points.
All this explains why AMD's client revenue growth is much faster than that of Intel's. More importantly, both companies are trying to capitalize on the AI PC market's growth, with Intel pointing out that it plans to ship 40 million AI PCs by the end of 2024. Intel recently released a new line of AI-focused client CPUs code-named Lunar Lake that are set to start shipping in the current quarter.
However, Intel's guidance suggests that its foray into the AI PC market isn't bearing fruit, at least in the near term. The chipmaker has guided for $13 billion in revenue in the current quarter, at the midpoint of its guidance range. That would be an 8.5% decline over the same quarter last year and a bigger decline than the 1% revenue contraction Intel witnessed in Q1.
With CCG being Intel's largest business segment, accounting for 58% of its top line, the company's poor guidance doesn't bode well for the health of this business. Meanwhile, Intel is also ceding ground to AMD in the server CPU market, which is expected to enjoy a nice boost thanks to the growing demand for AI servers.
Intel's share of the server CPU market went down by 5.6 percentage points in Q2 on a year-over-year basis. AMD now controls just over 24% of this market and delivered record data center revenue of $2.8 billion in Q2 (an increase of 115% from the prior year) thanks to its improving influence in server CPUs. Intel's revenue from the data center and AI (DCAI) segment, on the other hand, was down 10% year over year to $3.8 billion.
AMD's data center business also benefited from the growing sales of the company's AI accelerators. AMD expects to generate more than $4.5 billion in revenue this year from these sales. That suggests that it could be way ahead of Intel in this space, as the latter was forecasting $500 million in revenue from sales of its AI accelerators in the second half of 2024.
So, the odds seem stacked against Intel, and analysts have reduced their revenue expectations.
INTC Revenue Estimates for Current Fiscal Year data by YCharts
Valuation is another concern
Intel stock is currently trading at an expensive 87 times trailing earnings and 79 times forward earnings. Those multiples are way higher than the U.S. technology sector's average price-to-earnings (P/E) ratio of 46.
Intel's poor quarterly performance and guidance clearly indicates it is not in a position to justify such expensive multiples. Moreover, the expensive earnings multiples are a result of the sharp decline in the company's bottom line of late. Its adjusted earnings fell to just $0.02 per share in Q2 from $0.13 per share in the same quarter last year. The Q3 forecast calls for an adjusted loss of $0.03 per share as compared to a profit of $0.41 per share in the year-ago period.
So, Intel stock could continue heading south thanks to its poor prospects and expensive multiples, which is why it is unlikely that it could achieve the one-year median price target pointed out earlier. However, it won't be surprising to see this semiconductor stock approaching the Street-low price target of $17 in the coming year, which would be a 15% drop from current levels.
Investors, therefore, would do well to stay away from Intel, considering that there are better opportunities available in the semiconductor space to take advantage of catalysts such as AI.
