On a generally "up" day for semiconductor stocks, shares of Intel (INTC 4.22%) stock are slumping Wednesday morning, down 3.5% through 10:15 a.m. ET.
You can probably blame Northland Capital for that.
Image source: Intel.
Beware the AI pullback
As StreetInsider.com reports, Northland downgraded Intel stock to "market perform" (i.e., hold) yesterday, citing valuation concerns and worries about the health of the artificial intelligence economy.
AI stocks depend on a virtuous cycle, you see, in which demand for AI services causes AI companies to build giant data centers, and outfit them with AI chips manufactured by companies like Intel. Problem is, the AI companies themselves -- the so-called "hyperscalers" -- are running into a cash crunch.
With 100% of operating cash flow already committed to buying chips, hyperscalers have loaded up with $260 billion in industrywide debt and stopped buying back their own stock. This suggests there's no spare cash left to spend on buying even more AI chips -- in which case, there may be a ceiling on how much Intel can grow.
NASDAQ: INTC
Key Data Points
What this means for Intel
Now it's important to note that this is not a problem limited to Intel. (Northland actually downgraded two other semiconductor stocks at the same time it was cutting Intel.)
Still, after running up more than 500% in share price over the past year, Intel stock does look particularly vulnerable to a pullback based on overvaluation. As Northland points out, Intel's data center business might still grow 40% in 2027, and Intel stock currently trades at 38 times its projected 2027 earnings. The stock's even more expensive when valued on trailing earnings, though -- costing more than 900x earnings by my estimation -- which seems a bit extreme.
Intel might be "working" as a momentum stock right now. It's the farthest thing from a good value stock, however.
