As investors surely already know, bellwether Intel Corp (INTC) has become the black sheep of the semiconductor family. Late to the game in shifting from CPUs to GPUs, Intel has lost industry leadership to Nvidia (NVDA) and long-term competitor Advanced Micro Devices (AMD). That fact is crystal clear when recognizing that NVDA stock’s market cap is now approximately 40x that of Intel.
With shares of Intel at a low, new leadership at the company, as well as sprinkles of takeover interest since Intel’s dark days of August, many investors may hold optimism for a turnaround in Intel’s valuation. At the current juncture, I prefer to wait but earn income off of a commitment to buy INTC shares at a lower price. Officially, I offer a Hold rating on INTC.
Though the stock has seen bigger market cap losses, Intel stock’s 26% plunge on August 1, 2024, was its biggest downside percentage move in at least the past decade. It was also preceded and followed by trading days with losses greater than 5%. The company has certainly disappointment investors on other occasions, but after reporting their Q2 2024 results, there was little appetite from contrarian investors to buy the dip. Intel’s entire business relevancy was questioned by some analysts as margins fell steeply and the company announced plans for layoffs.
The company also suspended its dividend. Those who took a closer look noticed that Intel’s Free Cash Flow (FCF) had turned negative way back in 2022 and that the company was carrying nearly $30 billion of net debt against declining prospects. Intel had been spending more money than it had been taking in since the beginning of 2023, and the Q2 2024 results essentially served as D-Day for the company’s existing arc and strategy.
Although there’s been substantial pain for investors, INTC shareholders should be thankful that very few large dividend funds/ETFs owned the stock this summer. Otherwise, the selling would have been much worse.
I continue to believe there’s value in Intel. The company has tens of thousands of patents and a longstanding reputation for dependable chips. While the company’s reputation with investors may be severely damaged, its reputation with long-time PC clients should be less harmed. That part of the business should continue to chug along while the company works to regain its bearings and advance its technological competitiveness for the age of AI.
