Is Intel stock worth buying?

Intel (INTC -0.51%)one of the world’s largest chipmakers has lost more than half of its market value over the past five years. Its business declined as it struggled with production delays, chip shortages and drastic strategic changes under different CEOs. But could Intel stock be worth buying again now that it’s trading at its lowest prices in over a decade?

What went wrong at Intel?

The company is the world’s largest manufacturer of x86 processors for PCs and servers. Designs and manufactures most of its own chips; its smaller competitor, AMDoutsources production to external foundries such as Taiwanese semiconductor productionor TSMC.

For decades, Intel has produced the smallest, densest and most powerful x86 processors in the world. However, with each generation of updates, smaller chips became more difficult and expensive to produce. As a result, many chipmakers – including AMD – have spun off their capital-intensive foundries and outsourced their entire manufacturing process.

Intel refused to follow AMD’s example and become a chipmaker without factories, but also fell behind TSMC and SAMSUNGfoundries in a “process race” to produce smaller and denser chips. It tried to catch up, but these disjointed efforts stalled the development and production of its own chips.

Many customers were frustrated by constant delays and shortages, so they turned to AMD to ensure a steady supply of high-end chips produced by TSMC.

According to PassMark Software, this is why Intel’s share of the x86 processor market fell from 82.2% to 62.8% from the fourth quarters of 2016 to 2024. During the same period, AMD’s share almost doubled from 17.8% to 33.2%. .

Intel also missed two major technological changes. First, it failed to leverage its dominance in the PC and server markets to launch a sustainable line of mobile chips. Instead, Holding arms has conquered this fertile territory by licensing its more energy-efficient designs to a wide range of chipmakers.

Second, the growing importance of discrete GPUs in processing artificial intelligence (AI) applications has been overlooked. This trend has prompted many companies to modernize their data centers Nvidiahigh-end GPUs, but most of these customers weren’t prioritizing CPU upgrades.

Intel still has an identity crisis

Intel needs a steady hand to guide its transformation, but the last three CEOs have taken its business in different directions. Brian Krzanich, who stepped down in 2018, tried to diversify beyond desktop computers and server processors into programmable chips, automotive, Internet of Things (IoT) and memory chips.

Instead, his successor, Bob Swan, prioritized cost cutting and large buyouts. It even considered turning Intel into a chipmaker without factories before being ousted in 2021.

Pat Gelsinger, the chief architect of Intel’s i486 processor in the 1980s, then returned as CEO and promised to modernize his foundries and catch up with TSMC and Samsung. The company has secured billions of dollars in government grants to support this strategy, but these costly efforts still have not significantly closed the gap with its leading Asian competitors.

Intel is reportedly currently considering spinning off its foundry, selling its programmable chip division and divesting other non-core businesses. Gelsinger is still in power, but these plans may completely reverse his original strategy.

Can we consider Intel a value stock?

From 2018 to 2023, the company’s revenue dropped from $70.8 billion to $54.2 billion. Earnings per share (EPS) dropped from $4.48 to just $0.40, and the company suspended its dividend earlier this year. This decline was due to divestments, loss of market share to AMD, declining PC shipments and macroeconomic headwinds that prevent data centers from upgrading processors.

For now, analysts expect Intel’s revenue compounded annual growth rate (CAGR) to be 4%, while EPS has a CAGR of 38%. These optimistic estimates are likely based on expectations that Intel can increase production of new chips, expand its third-party foundry operations and regain process leadership from TSMC and Samsung.

However, in the last quarter, Intel admitted that it was struggling with low performance rates in its new 18A process and was crushing its own gross margins as it developed new AI processors that offer more native AI processing capabilities. Therefore, I wouldn’t be surprised if the company beats Wall Street’s long-term consensus estimates by a mile.

Even if Intel meets analyst expectations, its stock isn’t a terrible bargain yet. At $22.50, it still trades at 113 times next year’s earnings and 24 times 2026 earnings. AMD and Nvidia – which are growing faster and face fewer existential challenges – trade at just 48 and 33 times, respectively. multiple of next year’s profits.

That’s why I wouldn’t consider Intel a value stock right now. Its turnaround plans are unclear and it may sell itself in pieces to bring its business down to size. It might be worth buying again when it finally becomes clear what those plans are, but I wouldn’t touch it unless it provided more compelling reasons to believe in a long-term recovery.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: Short November 2024 $24 calls to Intel. The Motley Fool has a disclosure policy.