Intel’s Decline: A Journey from Stability to Struggles in the Semiconductor Market
Intel (NASDAQ: INTC) was once viewed as a reliable investment in the semiconductor industry. However, over the past decade, its stock has dropped by 26%. When factoring in reinvested dividends, the total return is a negative 4%. Meanwhile, the S&P 500 increased by 192%, yielding a total return of 250%. Notably, AMD’s (NASDAQ: AMD) stock skyrocketed by an impressive 5,220%. This article explores Intel’s decline and its potential for recovery in the future.
The Reasons Behind Intel’s Struggles
Intel remains the leading producer of x86 central processing units (CPUs) for PCs and servers. Yet, PassMark Software reports that Intel’s market share in this segment fell from 82.2% to 61% from the fourth quarter of 2016 to 2024. In contrast, AMD’s share increased from 17.8% to 35.7% during the same time.
The shift in market dynamics arose as Intel faced production delays, chip shortages, and strategic missteps under three CEOs. While Intel manufactures most of its chips in-house, AMD relies on third-party foundries like TSMC and Samsung, which have kept pace with industry demands.
Intel’s challenges began with a difficult transition from 14nm to 10nm chips (2017-2020), which only got worse as they struggled to move to 7nm technology (2020-2023). During this time, AMD successfully launched new Ryzen CPUs for PCs and Epyc CPUs for servers, manufactured efficiently by TSMC. Consequently, many of Intel’s long-standing customers started choosing AMD’s products.
Additionally, Intel missed key opportunities in the mobile chip market and its CPUs became overshadowed by Nvidia’s graphics processing units (GPUs), especially in the growing AI sector. These failures suggested that Intel was losing its competitive edge in chip manufacturing.
Intel’s uphill fight for recovery
Pat Gelsinger took over as Intel’s CEO in 2021 and initially argued against following AMD’s model by not becoming a “fabless” manufacturer. Instead, he focused on expanding Intel’s own foundries and sought government support while claiming the company could match TSMC by 2025.
Despite this, Intel began outsourcing some production to TSMC to relieve its foundry constraints. Yet, even with this strategy, the company struggled to produce its latest Meteor Lake chips amid rising pressures from AI-driven CPU developments impacting profit margins.
While dealing with these challenges, Intel also enacted layoffs, divested from non-core businesses, and suspended its dividend in August. In September, it announced plans to spin off its foundry unit as an independent subsidiary and sell parts of Altera, a company it acquired in 2015. These decisions pointed to a need for survival rather than an aggressive push to outpace competitors like TSMC and Samsung.
What lies ahead for Intel?
From 2018 to 2023, Intel’s annual revenue dropped from $70.8 billion to $54.2 billion, while earnings per share (EPS) fell from $4.48 to $0.40. This decline was influenced by lost market share to AMD, a slowing PC market, and ongoing business divestments.
However, between 2023 and 2026, analysts predict Intel’s revenue and EPS to grow at a compound annual growth rate (CAGR) of 4% and 29%, respectively. This potential recovery is linked to a stabilizing PC market, improving chip production, and cost-cutting measures of over $10 billion expected by 2025.
Is Intel a stock worth investing in?
Currently priced at $25, Intel trades at 29 times its projected earnings for 2026. In comparison, AMD trades at 31 times its anticipated earnings, benefiting from a stronger growth trajectory. With these valuations, it’s challenging to justify choosing Intel over AMD at this time.
In an optimistic scenario, if Intel’s sales and profits stabilize with the introduction of new chips and positive cash flow, it may be able to reinstate its dividend and regain its status as a dependable blue-chip stock. However, expectations for Intel’s stock to double or triple in value within a few years seem unlikely. The company appears more like a mature tech stock grappling with existential challenges rather than a high-growth player with millionaire-making potential over the decade.
Should you invest $1,000 in Intel now?
Before purchasing Intel stock, it’s essential to consider the following:
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool also recommends shorting November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.