Intel (NASDAQ:INTC) stock has sort of fallen by the wayside in recent years. The successful emergence of Advanced Micro Devices (NASDAQ:AMD), a fabless chipmaker, has already eaten away at much of Intel’s market share.
These days, Intel also faces an uphill to climb in terms of developing artificial intelligence-enabling chips that are on par with those from Nvidia (NASDAQ:NVDA).
INTC have plummeted 39% since the start of the year, despite a significant rally in 2023 that saw its share price nearly double. Below are 3 reasons to get rid of your Intel stock holdings if it’s still in your portfolio.
Intel’s AI “achievements” are behind the competition
These days, the market craze is still around artificial intelligence-related technologies. Chipmakers that design that CPUs and GPUs that generate enough processing power to help develop large language models.
Nvidia has been the clear leader in churning out powerful chips for AI development. Most recently, the Nvidia Blackwell series, set to be released the second half of 2024, are years ahead of the competition.
Intel announced their Gaudi 3 processor earlier in the year, and the chipmaker touted that the chips performance is on par with that of Nvidia’s popular H100 chipset.
High-bandwidth memory is critical component of performance for these high-end chips and, thus, serve as a good point of comparison between differing chipsets.
The Gaudi 3 has more HBM than the H100 but less than Nvidia’s H200 and B200 as well as AMD’s MI300 chip series.
That is all to say, in terms of performance, Intel’s newest AI chipset is behind the latest and greatest of its competitors. With the Gaudi 3 not available on the market until later in the year, investors do not have a lot to be hopeful about.
The Foundry business’s financials remain underwhelming
In recent years, Intel has attempted to turnaround its Foundry (or chip manufacturing business).
The Foundry came under scrutiny when the company had to delay the release of its 7nm CPUs due to ongoing manufacturing issues way back in 2020. This occurred during the same year in which competitor AMD had already been shipping chips of that node size.
Intel’s response to its lagging manufacturing capabilities was to give its Foundry business more autonomy. That is, the business would run separately from Intel’s others and would be allowed to take on manufacturing services for third-party clients.
Still, even with those meaningful strides, the Foundry business continues to churn out sizable losses. The manufacturing unit generated $18.9 billion in revenue (a 30% decrease from 2022).
It also reported $7 billion worth of operating losses in 2023, which had expanded upon the $5.2 billion loss figure of 2022.
As Intel continues to ail its manufacturing woes, investors can probably expect to see more losses going forward.
Despite a low valuation, most of Wall Street is lukewarm
For Intel optimists, the chipmaker’s valuation is something positive worth noting. Intel currently trades at 24.0x forward earnings.
This valuation multiple happens to be well below that of both AMD and Nvidia, which trade at 39.6x and 45.5x forward earnings, respectively.
Typically, a lower multiple in a competitive landscape presents a key opportunity for an investor to possibly benefit from holding an “undervalued” stock.
Unfortunately, the reason Intel is trading below its peers is not because there is some hidden value that most of the market has yet to realize.
No, it is largely due to the lack of innovation and growth the chipmaker has delivered in recent years. The gap will likely widen as Intel continues to lag behind in node size capabilities.
Wall Street is also feeling lukewarm on INTC shares. According to Koyfin, there are 47 analysts that cover the stock and 31 have it rated as a “Hold.”
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
