Among the giants of the semiconductor industry, Intel (INTC) stands with faltering footsteps, a stark contrast to its peers who have been sprinting ahead over the last 18 months. As the VanEck Semiconductor ETF (SMH) doubled investor returns since the onset of 2023, INTC stock stumbled, trailing behind by almost 30%. And the picture darkens when we zoom out over a decade; from September 2014 to the present, INTC stock has plummeted by nearly 46% while the SMH ETF has soared by over 700%.
Intel’s struggle stems mainly from the relentless assault of competition from Nvidia (NVDA) and Advanced Micro Devices (AMD). Drowning in decreasing revenue and cash flow, the once-mighty chip maker was compelled to halt its dividend payouts and chop its workforce by 15% after its disappointing Q2 earnings report.
The dismal performance of Intel prompts speculation that it might face expulsion from the prestigious Dow Jones Industrial Average ($DOWI).
The Diminishing Weight of Intel on the DJIA
Once a pioneering technology company that rode the wave of the dot-com boom into the Dow Jones Industrial Average, Intel now holds the ignominious title of being the lightest-weighted stock in the index, capturing a mere 0.31% share. Unlike the S&P 500 Index, where weights are dictated by market capitalization, the DJIA calculates values based on the outright share price of its 30 constituent companies.
INTC stock paints a grim picture on the DJIA charts, plunging over 62% in 2024 alone. This freefall in market value has shrunk Intel’s market capitalization to less than $100 billion for the first time in almost 30 years. Analysts are already tipping the scales in favor of Nvidia or Texas Instruments (TXN) to take Intel’s place on the DJIA roster.
Hope on the Horizon for Intel Stock?
Intel stirred some optimism in the market when reports surfaced that it is contemplating strategic maneuvers with investment bankers, including segmenting its business units and pausing its factory expansion blueprints. The firm’s heavy investment in a chip manufacturing foundry to rival leader Taiwan Semiconductor Manufacturing (TSM) might see a division between its foundry arm and core chip design sector, a move geared toward bolstering Intel’s fundamentals and appeasing shareholders.
Amidst its Q2 earnings saga, Intel announced a $10 billion austerity plan and pledged to slash full-year capital expenditures by at least 20%. The June quarter clocked revenue at $12.83 billion with adjusted earnings per share at $0.02. Alas, the GAAP numbers narrated a tale of woe, showcasing a loss of $1.61 billion or $0.38 per share compared to a net income of $1.48 billion, or $0.35 per share, in the corresponding period last year.
The pitfall in Q2 stemmed from the accelerated ramp-up in production of Core Ultra PC chips tailored for AI operations, resulting in financial hemorrhage for Intel. Nonetheless, the company predicts a robust expansion in the AI PC market, surging from under 10% currently to over 50% by 2026, with shipments of AI-driven PC chips projected to surpass 40 million units in 2024.
Despite rivals like Nvidia and Broadcom (AVGO) gorging on AI-centric revenues, Intel’s data center and AI division witnessed a 3% dip in sales in Q2, bringing a fresh wave of challenges.
In the ongoing quarter, Intel estimates revenue to fall within the $12.5 billion to $13.5 billion range, with an adjusted net loss of $0.03 per share. This forecast starkly contrasts with Wall Street’s expectations pegging revenue at $14.35 billion and earnings at $0.31 per share for Q3.
Intel Stock’s Target Price Amidst the Chaos
Intelligence from analyst circles paints a picture of hope for INTC stock, with the average target price clocking in at $29.19, showcasing a potential surge of over 50% from present levels. Out of the 36 analysts monitoring Intel, two strongly recommend a buy, one suggests a moderate buy, 30 favor a hold, one leans toward a moderate sell, and two advocate a strong sell, culminating in an overall consensus of a “hold.”
A storm is brewing on the semiconductor horizon as Intel grapples to find its footing amidst the AI race, rendering it a high-risk proposition for investors seeking stability.
On the date of publication,
Aditya Raghunath
did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy
here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
