Intel stock drops $10?

Intel’s stock price has soared this year amid several challenges, including losing market share to rival AMD in both the PC and server space and the industry’s broader shift from CPUs to GPUs in the era of generative AI. It fell by about 60%. Manufacturing error. We currently believe Intel stock is undervalued post-sale, and in our fair estimate, Intel’s stock is currently undervalued due to the company’s low valuation and potential regulatory benefits under the Trump administration. We believe the price will be $27 per share, nearly 30% higher than the market price. The impending introduction of the next-generation 18A manufacturing process could improve the stock’s picture. (See our analysis of Intel’s valuation: Is it expensive or cheap?) However, there are risks, and there’s a good chance things get worse before they get better. In fact, Intel stock has fallen about 20% in the last month alone. This analysis considers three important metrics: revenue, net income, and price-to-earnings ratio, and finds that Intel’s stock price could fall approximately 50% from current levels to approximately $10 per share. is emphasized. Separately, the Fed’s lower outlook for the number of rate cuts is having an impact on other areas of the market. See Could Fed Pessimism Send Bitcoin Below $80,000?

There is no guarantee that profits will recover.

Intel’s revenue is expected to drop from $79 billion in 2021 to 2023, as the PC market cools post-COVID-19 and CPU sales decline due to rival AMD’s increasing market share and the threat of ARM-based chipsets. decreased to $54 billion. More portable and power efficient compared to Intel’s x86 chips. A surge in demand for GPU chips for AI applications, an area where Intel has a relatively limited presence, has also hurt. While the PC market is recovering, with sales expected to grow in the low single digits this year, Intel’s revenue doesn’t appear to have recovered significantly yet, with consensus forecasts for this year’s sales at 3.3%. This year’s sales are expected to decline by 6%, while sales are expected to decline by 6%. Next year’s growth. There is still a possibility that Intel’s earnings will be stagnant for some time due to several factors. Separately, if you want a smoother rise than individual stocks, consider the High Quality Portfolio, which has outperformed the S&P and returned over 91% since its inception.

why?

To rebuild its business, Intel is betting big on a foundry model that essentially uses its own manufacturing capabilities to make chips for external customers. However, there is no guarantee that this will pay off. The company’s latest 18A process is its most advanced manufacturing technology to date and is the cornerstone of its foundry business, which has seen several positive developments recently. (See “Is Intel Foundry Ready for a Comeback?”) That said, Intel’s track record with internal execution does raise concerns. Intel’s recent transition to advanced process nodes has been very inconsistent. For example, the 10nm node faced significant yield and manufacturing challenges several years ago. Similar challenges can arise with the 18A process. These difficulties even forced Intel to outsource some of the manufacturing of its new chips to Taiwan’s TSMC. Given Intel’s struggles with chip manufacturing, it’s natural to question whether it can be trusted to produce chips for other companies at scale. Earlier this month, Intel announced that CEO Pat Gelsinger, the architect of Foundry Pivot, would be leaving the company. Separately, shareholders filed a lawsuit last week accusing Intel’s management of making false and misleading statements about the company’s foundry business in violation of federal securities laws. These developments may not inspire confidence in the foundry business.

Intel’s CPU business could come under further pressure. AMD has gained market share in both the data center and PC markets, but competition may become even more intense in the future. The generative AI era could open the door to even more competition as PC manufacturers look to incorporate more AI smarts into their devices. For example, chip design company ARM and mobile chipset specialist Qualcomm have both expanded into the PC space, and Microsoft’s latest Copilot+ PC uses ARM chips that offer AI capabilities and consume less power. Accelerated compute servers used for generative AI applications typically require only one CPU to eight or more GPUs in the AI ​​server, which can create challenges on the server front. Additionally, GPU manufacturers such as Nvidia are playing a larger role in overall server system design and are looking to replace CPUs such as Intel with lower-power ARM chips. This could impact Intel’s core business.

Inter are clearly at a disadvantage. The company is keen to build momentum, but there are challenges here as well. Employee morale is unlikely to be that high following mass layoffs and cost-cutting efforts. Customers and buyers can also reconsider their commitment to Intel products and services. Consumers want “the best,” and today’s customers are less likely to choose Intel if they believe Intel is not the future. Everything just gets a little harder. Intel’s revenue is expected to be around $52 billion this year by consensus estimates, and due to the factors mentioned above, revenue could grow at a level of only around 2% per year to around $54 billion by 2026. There is a gender.

Intel’s profit margins could shrink further

Intel’s adjusted net profit margin (net income, or profit before expenses and taxes, calculated as a percentage of revenue) has been trending downward, reaching over 28% in 2021 (and the years before that). It has fallen to about 11% from the standard. Amid sales declines and market share losses in 2022, further sales declines and significant losses in the foundry business resulted in adjusted net profit margins declining to only around 8.5% in 2023. There remains a possibility that profit margins will fall to around 5% in the short term.

why?

Costs associated with foundry expansion could hurt Intel’s profits. For example, it can take time to achieve good production yields with a new 18A process. Additionally, Intel’s move to outsource production of its Arrow Lake chips to TSMC may reduce utilization of its own manufacturing facilities in the short term. Intel is also not known for its production efficiency. Looking ahead, Intel’s foundry business reported an operating loss of $7 billion on revenue of $18.9 billion in 2023, and the business is expected to remain in the red this year with revenue shrinking. Separately, increased competition in the CPU space with new entrants such as Qualcomm and ARM could force Intel to resort to some degree of discounting, impacting its profit margins.

How will this affect Intel’s valuation?

At the current market price of about $20 per share, Intel’s 2023 earnings are about 19 times, and its estimated 2025 earnings are about 20 times. The company is expected to be in the red in 2024. Combining the scenarios detailed above, we assume that annual sales growth from 2023 to 2026 averages only about 2%, and profit margins decline to about 5%. That means adjusted net income could fall from about $4.4 billion ($1.05 per share) in 2023 to about $2.75 billion ($0.66 per share) in 2026. 37% decrease compared to 2023. When times are bad, it’s easy to imagine worse times. And when that happens, we could end up in a vicious cycle where investors reassess Intel’s recovery path and assign even lower multiples to Intel. For example, if investors assigned a multiple of 15x after Intel’s continued poor performance, the stock would be worth about $10 per share.

What would be the duration of this negative return scenario? In this example, we’re showing this as a 2026 timeline, but in reality, it doesn’t make much of a difference whether it takes two years or four years. Intel also continues to struggle in its manufacturing sector, and any threat of competition could lead to a major correction in its stock price.

INTC stock’s decline over the past four years has been far from consistent, with annual returns much more volatile than the S&P 500. The stock returned 6% in 2021, -47% in 2022, and 95% in 2022. 2023. In contrast, Trefis’ high-quality portfolio, which includes a collection of 30 stocks, has significantly lower volatility. And it has outperformed the S&P 500 every year over the same period. why is that? For the group as a whole, Headquarters portfolio stocks carried less risk and delivered better returns compared to the benchmark index. It’s not been a roller coaster ride, as evidenced by the performance metrics of our corporate portfolio.

That being said, we believe there is value in being patient. Patient investors and customers will definitely be rewarded. This analysis focuses on the catalyst for Intel’s stock price recovery. The company is a prestigious company with an illustrious past and valuable know-how in growing markets. Our analysis suggests that victory is at hand, but it may not happen quickly and patience will be required.

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