Semiconductor giant Intel (INTC 0.80%), once overwhelmingly dominant in its core central processing unit (CPU) markets, is scrambling to turn itself around. Market-share losses, missed opportunities in artificial intelligence (AI), and an expensive bet on becoming a foundry have all been weighing on the stock.
While there are certainly legitimate reasons to sell, Intel stock still looks like a solid buy for long-term investors with plenty of patience.
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Reasons to sell Intel stock
Intel fell into a common trap for companies that dominate their core markets -- complacency. Prior to AMD's renaissance, which began around 2017 with the first iteration of its Zen-based CPUs, Intel faced little competition from its rival. Back in 2017, Intel's desktop PC CPU market share was nearly 90%, and its server CPU market share topped 98%. The company appeared untouchable, and its in-house manufacturing gave it an important edge.
Fast forward to today, and Intel's dominance has clearly deteriorated. While Intel remains the market-share leader, as of mid-2024, its share of the desktop CPU market had fallen below 80%, and its share of the server CPU market was around 75%. AMD now has great products available in both markets, putting pressure on Intel's core business. Intel's manufacturing technology fell woefully behind TSMC, which AMD uses to make its chips.
Compounding Intel's problems are a weak PC market coming out of the pandemic-era boom and a hard shift in data center spending toward AI accelerators. Intel attempted to battle Nvidia in the AI accelerator market with its Gaudi chips, but the company fell well short of its own targets and has largely abandoned the effort.
Intel's annual revenue has tumbled from more than $75 billion a few years ago to around $53 billion, and profits have vanished. Given these developments, it's all too easy to write off Intel's ongoing turnaround efforts.
Why Intel stock is still a buy
Despite plenty of problems and headwinds plaguing Intel, there's still a lot to like about its long-term prospects. Under new CEO Lip-Bu Tan, Intel is set to get serious about reining in its costs with a planned layoff over the summer. Bringing its cost structure down to reflect its current market position is critical to getting the company back on its feet.
In the products business, Tan plans to eliminate layers of middle management and put the focus back on engineering. In the foundry business, Tan will emphasize listening to customers and adapting as needed to bring in enough external customers to make the company's massive manufacturing investments pay off.
The Intel 18A manufacturing process, which is now complete and set for volume production later this year, has the potential to be a big winner for the company. The process delivers significant performance and efficiency gains over Intel's previous processes, and it's the first process available that includes backside power delivery. Intel now must scale up the process and achieve acceptable yields.
Intel 18A will be used for the company's upcoming Panther Lake PC chips, which could give it a key advantage over AMD. It has won some external customers for Intel 18A, but not nearly enough. Panther Lake could act as a proof of concept for potential customers that are on the fence about committing to Intel for manufacturing.
With a new focus on engineering, a plan for a streamlined organization capable of moving faster, and manufacturing technology that has advanced drastically over the past few years, Intel has all the pieces in place for a successful turnaround. Intel stock trades for around 0.9 times book value, meaning that the company is valued at less than its assets minus liabilities. While this valuation metric has limitations, Intel's is currently hovering around a multidecade low.
Intel stock isn't for the impatient. The company must stabilize and then grow its CPU market share, cut costs and enact layoffs without killing morale or losing its best talent, and win multiple large external customers for its foundry. To make things more challenging, Intel faces a highly uncertain economic environment and U.S. trade policies that can change on a whim.
Still, given Intel's deeply pessimistic valuation and a new CEO ready to make the painful but necessary changes to get the company back on track, Intel stock has the potential to deliver market-beating gains if the turnaround shows any meaningful signs of progress.
