Should I Buy Intel’s Shares After Their Big Sell-Off?

But
Intel
has
been
left
out
of
the
party.
While
the
firm
is
the
market
share
leader
in
central
processing
units,
it’s
struggling
to
keep
up
with
the
kinds
of
semiconductor
chips
central
to
AI
work,
particularly
graphics
processing
units.
This
year,
Intel’s
stock
has
fallen
nearly
31%,
and
over
the
last
12
months,
it’s
up
just
8%.
In
the
longer
term,
the
numbers
are
even
more
dour:
trading
near
$35
(£26.85)
per
share,
Intel
is
down
45%
from
a
March
2021
high,
and
it’s
never
recovered
to
its
dot-com
bubble
high
of
$74.88.

“Intel
[…]
has
some
AI
products,
but
they
don’t
appear
to
be
making
much
of
a
dent
in
the
market
versus
Nvidia,”
says
Morningstar
equity
strategist Brian
Colello.
Meanwhile,
when
it
comes
to
Intel’s
core
personal
computer
chip
business,
“Qualcomm
[QCOM] appears
poised
to
gain
PC
processor
market
share
at
the
expense
of
Intel.”

More
broadly,
“for
several
years,
Intel
has
struggled
by
falling
behind
the
curve
on
chip
manufacturing,
moving
from
a
technological
advantage
over
TSMC
to
a
clear
technological
disadvantage
in
recent
years,”
Colello
says.

“These
missteps
on
the
manufacturing
front
have
enabled
AMD
to
gain
market
share
in
both
PC
and
server
processors.”

Key
Morningstar
Metrics
For
Intel

• Fair
Value
Estimate:
$30.00;
• Morningstar
Rating:
3
Stars;
• Economic
Moat:
None;
• Morningstar
Uncertainty
Rating:
High;
• Forward
Dividend
Yield:
1.49%.

Falling
Behind
During
the
AI
Boom

Intel
is
a
leading
digital
chipmaker,
designing
and
manufacturing
microprocessors
for
PCs
and
data
center
markets.
It
is
well-known
for
its
execution
of
Moore’s
Law
(the
prediction
that
the
number
of
transistors
on
integrated
circuits
doubles
about
every
two
years)
and
the
x86
architecture
for
microprocessors,
which
is
the
instruction
set
for
practically
all
other
PCs.
During
the
late
1990s
tech-stock
boom,
Intel
was
a
top
performer
and
dominant
name
in
the
industry.

In
recent
years,
however,
Intel
has
lagged
behind
a
changing
semiconductor
landscape
as
demand
shifted
from
PCs
toward
mobile
devices
and
the
cloud,
and
stiffer
competition
has
come
for
its
core
business
line.
While
Intel
is
trying
to
catch
up
to
Taiwan
Semi’s
manufacturing
levels,
Colello
says
that
segment
is
less
profitable
than
expected.
Additionally,
Intel
has
developed
some
AI
products,
but
its
efforts
are
not
nearly
as
vast
as
those
of
big
names
like
Nvidia.

Microsoft
has
backed
the
“AI
PC,”
which
uses
Qualcomm’s
Arm-based
processors.
“These
PCs
should
gain
share
over
traditional
x86
PC
processor
vendors,
mostly
Intel
(and
perhaps,
to
a
lesser
extent,
AMD).
It’s
possible
that
Intel
catches
up
in
manufacturing,
but
its
various
ecosystems
shift
to
chips
designed
by
others,”
Colello
says.

Intel
Stock
Valuation

Intel’s
stock
is
down
significantly,
but
Colello
doesn’t
think
it’s
looking
cheap
yet.
For
a
bullish
outlook,
Intel
“might
improve
foundry
profitability
faster
than
expected.
Perhaps
they
take
a
manufacturing
process
lead
after
all,
maybe
demand
for
PCs
with
Qualcomm
processors
will
be
muted,
perhaps
Intel
finds
a
couple
of
large
foundry
partners
to
offset
any
share
losses
elsewhere,”
he
says.
“But
our
base
case
assumptions
imply
that
intel
is
fairly
valued,
given
the
various
opportunities
and
threats.”

Intel
trades
at
about
$33
per
share,
compared
with
about
$50
at
the
beginning
of
the
year.
Colello
says,
“the
most
likely
path
for
upside
is
if
the
company
can
execute
on
its
aggressive
advanced
manufacturing
roadmap,”
and
he
thinks
it’s
doing
okay
in
this
regard.
“If
so,
there’s
a
path
for
Intel
to
slow
the
bleeding
a
bit
on
the
PC
and
server
market
share
front.
Also,
even
if
Intel
were
to
lose
share
in
selling
chips,
there’s
potential
for
the
company
to
manufacture
these
chips
for
its
competitors.”

The
following
are
highlights
from
Colello’s
current
outlook
for
Intel.
The
full
report
is
available here.

Fair
Value
Estimate
for
Intel

Our
fair
value
estimate
for
Intel
is
$30
per
share,
which
implies
a
2024
adjusted
price/earnings
ratio
of
30.5
times
and
a
2025
ratio
of
15
times.
Intel’s
revenue
fell
14%
in
2023,
due
to
a
significant
pause
in
PC
spending
after
a
couple
of
strong
years
of
upgrades
during
the
covid-19
pandemic,
along
with
market
share
losses
and
more
cautious
spending
among
data
center
customers.
We
don’t
foresee
a
huge
rebound
in
2024
and
model
only
1%
growth.

On
the
bright
side,
Intel
should
achieve
some
PC
CPU
growth
in
2024
(we
model
4%
revenue
growth)
and
expects
to
earn
$0.5
billion
in
AI
accelerator
revenue
from
its
Gaudi
products.
However,
spending
on
server
CPUs
has
been
muted
as
cloud
customers
have
focused
their
spending
on
AI
accelerators
(mostly
from
Nvidia).
Meanwhile,
its
ancillary
businesses
will
face
severe
headwinds
in
telecom
spending,
which
will
weigh
on
overall
growth.

Read
more
about
Morningstar’s
fair
value
estimate
for
Intel

Economic
Moat
Rating

We
do
not
assign
Intel
a
moat.
The
company’s
returns
on
invested
capital
have
fallen
in
recent
years,
and
the
firm
did
not
earn
excess
returns
on
capital
in
2022,
nor
do
we
expect
it
will
do
so
in
2023.
The
deterioration
stems
from
the
firm’s
manufacturing
struggles
and
hefty
investment
phase
in
new
manufacturing
processes.
We
don’t
believe
the
company
will
generate
excess
returns
on
capital
in
the
next
three
to
five
years
(even
when
considering
government
subsidies
and
other
incentives).
We
are
also
not
entirely
confident
in
excess
returns
on
capital
looking
five
to
10
years
out
if
its
research
and
development
efforts
are
not
successful,
again
given
the
capital-intensive
nature
of
cutting-edge
chip
manufacturing.
If
Intel
perfectly
executes
its
aggressive
technological
roadmap,
it
may
warrant
a
moat
in
the
future.
The
company
is
currently
on
track
to
do
so,
but
it
has
stumbled
before,
and
we
would
like
to
see
further
progress
before
we
award
it
a
narrow
moat
again.

Read
more
about
Intel’s
economic
moat

Financial
Strength

Intel
is
in
a
difficult
financial
position,
in
our
view,
based
on
its
recent
inability
to
generate
free
cash
flow
and
its
aspirations
for
hefty
capital
investments
into
its
next
wave
of
chip
manufacturing
across
the
globe.
As
of
March
2024,
Intel
held
$21.3
billion
of
cash
and
investments,
compared
with
$52.4
billion
of
debt.
Intel
was
regularly
earning
$10
billion-plus
of
free
cash
flow
per
year
in
its
heyday
but
burned
$9
billion
in
free
cash
in
2022
and
almost
$12
billion
in
2023.
Intel
slashed
its
dividend
in
2023
and
will
pay
out
about
$2
billion
in
2024,
compared
with
$5
billion-$6
billion
per
year
in
the
past.

Read
more
about
Intel’s
financial
strength

Risk
and
Uncertainty

We
assign
Intel
with
a
High
Uncertainty
Rating.
The
firm
continually
faces
execution
risk
associated
with
keeping
pace
with
Moore’s
Law
and
creating
cutting-edge
processors,
both
in
terms
of
chip
design
and
chip
manufacturing.
On
the
latter
front,
Intel
stumbled
in
recent
years,
causing
the
firm
to
lose
market
share
and
suffer
notable
operating
losses.
We
foresee
execution
risk
associated
with
Intel’s
aggressive
plans
to
achieve
five
processor
nodes
in
four
years
by
the
end
of
2025.

Read
more
about
Intel’s
financial
risk
and
uncertainty

Intel
Bulls
Say

Intel
is
one
of
the
largest
semiconductor
companies
in
the
world
and
holds
the
lion’s
share
of
the
PC
and
server
processor
markets.

Intel
is
making
some
smart
moves
in
its
turnaround
plans,
such
as
shedding
noncore
businesses,
spinning
off
shares
of
its
attractive
automotive
business
(Mobileye),
and
seeking
innovative
co-investment
partnerships
with
financial
firms.

The
AI
semiconductor
market
is
booming,
and
Intel
is
one
of
the
few
merchant
firms
with
a
diverse
enough
portfolio
to
serve
a
larger
portion
of
the
market.

INTC
Bears
Say

Intel
encountered
significant
manufacturing
delays
in
years
past,
and
there
is
no
guarantee
that
it
can
execute
well
in
its
aggressive
aspirations
to
develop
five
process
nodes
in
four
years.

Even
if
Intel
can
regain
manufacturing
parity
with
Taiwan
Semiconductor,
AMD
is
currently
a
far
more
credible
chip
designer
in
the
x86
space
for
PC
and
server
CPUs.

Nvidia’s
GPUs
have
captured
most
of
the
AI
accelerator
market,
and
cloud
computing
spending
may
continue
to
shift
toward
these
GPUs
away
from
Intel’s
products
over
time.

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