Intel Stock: A Potential Bargain or Missed Opportunity?

Is It Too Late to Buy Intel Stock? | The Motley Fool

The company's stock has plunged more than 30% in the last month, yet it still isn't a bargain. Intel's (INTC -1.47%) share price was on a promising growth trajectory in early July, with its stock up 12% in the first half of the month. An escalating chip war between the U.S. and China made investors bullish about Intel's plans to build chip plants throughout the U.S. However, that changed when the company posted its earnings results for the second quarter of 2024 on Aug. 1. The chipmaker's stock has plunged 32% since the earnings release, knocking billions off its market value. Intel missed expectations on multiple counts and revealed cost-cutting measures that made stockholders uneasy. Operating income and free cash flow have fallen 100% and 238% over the last three years and Intel is in a tricky position, to say the least. Intel's long-term objective of becoming the world's biggest artificial intelligence (AI) chip manufacturer and investment in U.S. chip fabs remain compelling reasons to buy its stock. However, it's also difficult to consider its shares when better-valued and more reliable tech options are out there. So, is it too late to invest in Intel's stock? Wall Street has lost faith in Intel's vision after recent earnings. In Q2 2024, the company's revenue sank 1% year over year to $13 billion, missing analysts' estimates by $150 million. Meanwhile, the company's operating losses rose from just over $1 billion last year to about $2 billion in Q2. Less-than-stellar earnings came alongside concerning news that Intel plans to lay off more than 15,000 employees and eliminate its fourth-quarter 2024 dividend in an effort to reduce costs. For years, Intel was known for its generous dividend (by tech standards), with its cash amount rising from $0.22 to $0.37 per share between 2013 and January 2023. The payout decreased to $0.13 in February 2023 and has remained there until now. However, its total elimination could spell trouble, as it suggests executives aren't confident in Intel's financial stability in the near term. At its lowest, Intel's recent stock sell-off wiped away $32 billion from its market value, leading a group of shareholders to sue the company. These investors say they were blindsided by recent earnings, claiming the company made "materially false or misleading statements regarding the business and its manufacturing capabilities," which boosted its share price. Intel's Q2 earnings have created a lot of bad will with investors that will take time and more encouraging financial growth to subside. As a result, prospective investors will need to be willing to hold for the very long term if they're interested in the company's stock. Intel is playing the long game, sacrificing its current financial position to potentially see big gains later. A range of AI chip releases over the last year and beginning construction on the first of at least four proposed chip plants in the U.S. could see the company carve out a lucrative position in AI over the next decade. In fact, its coming Ohio chip factory aims to be the world's largest AI chip factory, which could see Intel's earnings rise over the long term as demand for graphics processing units (GPUs) continues to soar. However, recent earnings and a poor valuation have made its stock a risky option compared to other AI stocks. This chart shows Intel has by far the highest forward price-to-earnings ratio (P/E) among its AI and chip competitors, indicating its stock offers the least value. Meanwhile, it has the lowest free cash flow among these companies, highlighting its poor financial position. Nvidia, Advanced Micro Devices, and Taiwan Semiconductor Manufacturing each have more established positions in AI and are trading at better values. As a result, it's hard to consider investing in Intel when more reliable and affordable options are available. It's probably not too late to invest in Intel, as its long-term plan will likely pay off eventually. However, it's best to hold off until the company shows signs of recovery and consider investing in other tech firms that offer exposure to the same markets. If anything, maybe it's too early to invest in Intel.

Intel Stock Is Cheaper Than Its Ever Been | The Motley Fool

Intel's (INTC 5.73%) turnaround was always going to be a drawn-out affair. The company has been making massive investments in manufacturing to catch up to and surpass TSMC in terms of manufacturing technology. The Intel 18A process, set to be ready by the end of the year and scale up throughout 2025 and 2026, is expected to battle the best process nodes TSMC has to offer. Intel is aiming to use its new manufacturing processes to revitalize its PC and server-chip businesses, both of which have been held back by delays and missteps on the manufacturing side. The company also has plans to grow into the world's second-largest foundry by 2030, which would require more than $15 billion in annual external-foundry revenue by the end of the decade. Intel's goals are ambitious, to say the least. One downside of Intel's strategy: It can take years for these manufacturing investments to pay off. The foundry business is currently posting multibillion-dollar losses, the result of heavy spending and essentially no external revenue. Intel has booked at least $15 billion worth of external-foundry business, but much of that won't be converted into revenue until 2025 or 2026. As Intel is pouring capital into manufacturing, the company is facing a weak PC market, competitive pressure from AMD, and a priority shift among data-center customers toward AI chips and away from standard CPUs. Intel missed estimates for its second-quarter report earlier this month, and its near-term outlook has become bleak enough to prompt the company to enact a broad cost-cutting plan. Intel expects to slash its combined operating expenses and capital spending by at least $10 billion in 2025, as well as suspend the dividend to free up cash. This plan includes laying off about 15% of its workforce. Importantly, Intel isn't pulling back on its manufacturing goals. While the company is reducing its capital spending to a degree, nothing has changed about its long-term foundry targets. Intel stock tanked on this news. Based on one metric, it's now cheaper than it's ever been. The price-to-book value ratio (P/B), which takes a company's market capitalization and divides it by assets minus liabilities, is only useful in cases where earnings power is derived from physical assets. A manufacturing company fits the bill, while a software company generally does not. Intel is very much a manufacturing company. The company had over $100 billion worth of property, plant, and equipment on its balance sheet at the end of Q2, accounting for about half of its total assets. For Intel, the P/B is a useful metric. Here's the same chart for price-to-tangible bool value, which excludes intangible assets: INTC Price to Tangible Book Value data by YCharts. You have to go back decades to find a time when Intel was close to this cheap based on these two metrics. What's the "correct" P/B ratio for Intel? That's impossible to answer, but generally speaking, the higher the return on invested capital (ROIC), the higher the P/B ratio should be. A company that manufactures commodities, swinging between profits and losses, shouldn't trade at much of a premium to book value. Intel doesn't make commodities, and it has historically managed a ROIC between 15% and 20%. That metric has tumbled recently as Intel has ramped up investments while facing multiple challenges, but the cost-cutting plan should help the cause. Intel stock now trades for a bit more than 70% of its book value. The market is assuming that Intel is never going to recover. While the company may never be as dominant in its core markets as it once was, writing it off completely makes little sense. It's going to be a tough few years for Intel, but if you think the chance of a turnaround is anything greater than zero, this is a great time to buy the stock.