Lofty expectations aren’t necessarily a good thing. As Intel (NASDAQ:INTC) is going all-in on its chip fabrication business, the burden of proof lies on the company’s shoulders. It has to spend a lot of time, money and effort now hoping to make that money back. So, with Intel Foundry only being a “show-me” story right now, Intel stock only gets a “D” grade.
Intel seeks to set itself apart from U.S. companies that only design chips. The point of Intel Foundry will be to fabricate chips from start to finish with in-house processes. That’s easier said than done, and it’s much too early for anyone to declare victory on Intel’s behalf.
Everything Is Riding on This for Intel
Let’s be completely honest. Intel is desperate for a major turnaround. The company was once a roundly praised, dominant force in the American tech-hardware industry. But in the 2020s, Intel became a laggard as other chipmakers stole the company’s market share.
That’s why Intel Foundry will be make-or-break for the company. Yet, even before Intel fully builds out its fab-factory business, the company expects to grow rapidly.
Reportedly, Intel anticipate that it will ship chips for more than 100 million artificial intelligence enabled personal computers by 2025. Intel expects to generate $1 billion worth of software revenue before 2027. For context, Intel only recorded around $100 million worth of software revenue in 2021.
The optimistic tone of these lofty Foundry expectations sharply contrast with Intel’s disappointing second-quarter 2024 report. The company announced a dividend suspension to commence in the fourth quarter, a workforce reduction of more than 15% and Q2-2024 adjusted earnings of only 2 cents per share.
Intel’s Bullish Story Is ‘MIA’
Thus, both in the Foundry business and elsewhere, Intel has a whole lot of proving to do. That’s why we’re not on board with one investor’s recommendation that investors should “jump the gun” with Intel stock.
It’s generally not a prudent policy to “jump the gun” if that means investing your hard-earned money now and hoping for the best.
In contrast to “jumping the gun,” Stifel analyst Ruben Roy warned prospective Intel investors not to “jump the bandwagon.” Roy assigned a “hold” rating on Intel shares, which isn’t a very enthusiastic endorsement.
In a similar vein, Bernstein analyst Stacy Rasgon assigned a ho-hum “market perform” rating on Intel stock. Rasgon cautioned that Intel’s “AI story still feels mostly MIA,” meaning “missing in action.”
Moreover, Rasgon feels that even if Intel manages to generate $500 million in data center AI revenue during 2024’s second half, that would be “more than zero, but not much more.” The takeaway here is that Intel’s progress will likely be gradual at best, and could be deeply disappointing at worst.
Intel Stock: Stay Away From the Bandwagon
We’ve warned you before about Intel’s fabrication-factory business. Investors should “count on the foundry business continuing to be unprofitable, only perhaps reaching break-even margins by decade’s end.”
Until the story changes and Intel’s potentially costly Foundry gamble really starts to pay off, it’s fine for investors to just watch from the sidelines. Consequently, Intel stock could be a frustrating laggard for a while, and it only earns a “D” grade today.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
On the date of publication, the responsible editor did not have (either directly or indirectly) and positions in the securities mentioned in this article.
