It’s been a tough ride for Intel (NASDAQ:INTC) stock over the past five years. But with the stock up 43% in the last six months, there now appears to be some light at the end of the tunnel. Despite a 61% year-on-year increase, the company’s share price is still 3% lower than five years ago, indicating a substantial drop in value.
Intel’s stock today is 35% lower than the all-time high it reached back in 2000 before the internet bubble burst. Intel has struggled, and its shareholders suffered, as the company undertakes a multi-year, multi-billion dollar shift to becoming a microchip foundry. However, the pain now looks to be subsiding, and INTC stock is once again moving in a positive direction.
The Big Transformation for INTC Stock
Under the leadership of CEO Pat Gelsinger, Intel is undertaking one of the biggest changes in corporate America.
By 2026, Intel plans to be manufacturing microchips and semiconductors as advanced as those made by Taiwan Semiconductor Manufacturing Co. (NYSE:TSM), which currently makes 60% of all the microchips in the world.
To that end, Intel has been restructuring its factories as foundries that can make microchips for other companies such as Nvidia (NASDAQ:NVDA) and Apple (NASDAQ:AAPL).
To say that Intel’s plan is ambitious is an understatement. Intel has invested billions to develop chip foundries all over the world as it seeks to pivot towards chip-making rather than only microchip design.
Last summer, Intel announced plans to spend $33 billion to build two new chip fabrication plants in Germany, $4.6 billion on a chip plant in Poland, and $25 billion on a factory in Israel. The company is also building multiple chip plants in the U.S., including a $20 billion semiconductor plant in Ohio.
Improved Earnings
The heavy spending has weighted on INTC stock and resulted in heavy losses at the company. Last spring, Intel reported the biggest loss in the company’s 55-year history for the first quarter of 2023.
The situation has tested the patience of shareholders, some of whom have called for the replacement of Gelsinger. (The CEO took a 25% pay cut last year to appease angry shareholders). However, to the company’s credit, it has stood by Gelsinger and his vision for Intel through some tough times.
Now, the worst seems to be over for Intel, which is back to reporting strong financial results and controlling costs. For the third quarter of last year, Intel reported earnings per share of 41 cents, which was nearly double the 22 cent forecast on Wall Street.
Revenue came in at $14.16 billion versus $13.53 billion that had been expected. The company also announced plans to cut costs by $3 billion and posted a 15% year-over-year decline in operating expenses. The Q3 print has helped to lift INTC stock.
AI Chips
While most of the news about Intel centers on its pivot to becoming a chip foundry, the company continues to also focus on its core business of designing microchips and semiconductors.
In December, the company announced a brand new microchip for generative artificial intelligence software that is aimed at competing directly against rivals Nvidia and Advanced Micro Devices (NASDAQ:AMD). The new Gaudi3 chip will run big AI models that use a lot of energy.
Specifically, the new Gaudi3 chip is meant to challenge Nvidia’s H100 chip as well as AMD’s MI300X chip used in AI models and applications, including chatbots such as ChatGPT. Intel has said that the Gaudi3 chip will start shipping to customers by mid-2024.
Intel announced new Core Ultra chips designed for Windows laptops and personal computers, and new fifth-generation Xeon server microchips. These chips include a specialized part called an NPU that can run AI programs faster, including for video games, software programs, and cloud computing.
At the Consumer Electronics Show (CES) taking place in Las Vegas right now, Intel unveiled plans to develop automotive versions of its new AI chips in hopes of powering future vehicles.
Intel said it is acquiring Silicon Mobility, a private start-up company that designs microchips that control electric vehicle motors and charging systems. A purchase price for Silicon Mobility was not disclosed by Intel’s management team.
Insider Buys
As investors consider whether to buy INTC stock, they should be aware of the insider buying that has been going on at the company.
In November, it was disclosed that CEO Gelsinger has been buying large chunks of company stock on the open market. Gelsinger paid $250,000 between Oct. 31 and Nov. 1 to purchase 6,775 INTC shares at an average price of $36.80 each.
According to regulatory filings, Gelsinger now owns a total of 25,475 Intel shares worth $1.2 million through a family trust.
Gelsinger owns an additional 456,915 Intel shares worth $21.7 million through other trusts in his name. The Intel CEO has steadily bought INTC stock over the past year, with big purchases in July and early August.
The most recent stock purchases were disclosed as rumors surfaced Intel is the leading candidate to receive billions of dollars in government funding for secure facilities producing microchips for the U.S. military and American intelligence agencies. No contract has yet been awarded.
INTC Stock Is a Buy
After much upheaval, Intel now appears to be on the road to recovery and shareholders look likely to benefit in the year ahead.
The company’s shift to a microchip foundry is progressing well, with a renewed focus on cost controls and improved earnings. Intel is developing powerful AI chips for a competitive edge and lucrative government contracts. Intel CEO Pat Gelsinger is buying company stock and so too should investors. INTC stock is a buy.
On the date of publication, Joel Baglole held long positions in NVDA and AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
