Shares of the semiconductor company Intel (INTC +8.95%) fell hard in July as the company faced several pressures, including a broad chip stock sell-off and growing concerns among investors that Intel's capital expenditures (capex) are too high.
Intel stock fell by 35.4% last month, according to data provided by S&P Global Market Intelligence, leaving investors wondering where the tech stock is headed next.
Image source: The Motley Fool.
Lots of spending is worrying investors
Semiconductor stocks fell hard in July as investors questioned whether all the spending on artificial intelligence would pay off. For example, shares of memory chipmaker SK Hynix tumbled during the month, partly due to concerns that AI hardware spending is unsustainable.
By the end of July, 20 of the world's largest semiconductor companies had lost a cumulative $1 trillion in value due to the sell-off.
Large tech companies are spending heavily to build out their AI data centers -- $750 billion in capex spending this year alone -- and a lot of the spending is going to semiconductor companies for their processors.
To keep up with demand and win new contracts, Intel is investing heavily in semiconductor manufacturing capacity. Intel said on its second-quarter earnings call that it will spend more than $20 billion in capital expenditures this year and that 2027 spending will "be significantly above the 2026 levels."
Investors aren't loving the spending spree.
To its credit, Intel is making progress on building out its foundry business. Foundry sales rose 31% in the second quarter to $5.8 billion. But there are still questions about whether all of the capex for new manufacturing processes, like its 18A process, will win over enough large customers to justify the large investments.
And with spending ramping up next year, investors will be even more eager to see progress on this front in the coming quarters.
NASDAQ: INTC
Key Data Points
Intel stock still isn't a good deal
Even with its massive price decline in July, Intel's shares are still very expensive. Intel stock has a price-to-earnings (P/E) ratio of 88 right now, far higher than the tech sector average P/E ratio of just 34.
While Intel is making progress as it taps into the AI boom, the company still needs to prove it can attract large customers to its foundry business and accelerate its current growth.
I suspect Intel shares will experience much more volatility ahead as investors assess whether Intel's spending will translate to profits down the road.
