Intel Stock Analysis: The Bull and Bear Case for INTC

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Intel (NASDAQ:INTC) stock is considered an also-ran, with Nvidia (NASDAQ:NVDA) and AMD’s (NASDAQ:AMD) chips drawing the eye. But now, there’s an $11 billion equity infusion offered by Apollo that could transform its chip manufacturing process. Plus the $8.5 billion in upgrade funding from the Biden administration.

Under the leadership of reinstated CEO Pat Gelsinger, Intel has launched an ambitious plan for resurgence. Downsides include disappointing Q1 results and lower-than-expected Q2 guidance. Geopolitical tensions between the U.S. and China could affect Intel’s supply chain and costs. Here are the bull and bear cases for INTC stock to help you decide.

The Bull Case got INTC Stock

As a global leader in chip manufacturing, Intel faces challenges in maintaining its technological edge but is now entering the AI hardware market to rival Nvidia.

In May 2024, Wolfe Research upgraded Intel’s stock rating from “Underperform” to “Peer Perform,” citing potential margin improvements following the absorption of costs and increased in-house production capacity. The launch of Intel’s Gaudi accelerator signals its intent to compete aggressively in the AI sector against industry giants like Nvidia.

In Q1 2024, Intel attracted investments from 77 funds, with Arrowstreet Capital holding the largest stake worth $905 million. Despite a forward price-earnings ratio of 28-times (signaling investors expect future growth), Intel is currently heavily investing in its operations.

Ariel Investments noted Intel’s strong performance amid a semiconductor demand rebound, driven by PC and CPU recoveries, and highlighted its progress in AI capabilities and manufacturing technology.

Moreover, Citi noted a 15% surge in notebook sales last month, exceeding forecasts and likely boosting Intel’s chip revenue. Notebooks contribute 37% to Intel’s total revenue.

Despite slow AI PC demand until next year, Statista projects growth to 19% in 2024, 37% in 2025, and 53% in 2026. Intel, dominating the PC chip market, is poised to benefit from supplying chips for AI PCs.

The Bear Case

Intel has plenty of issues on hand as of recent weeks. Here are two of the most pertinent ones investors bearish on the stock continue to focus on.

Intel’s ongoing issue with Core i9 processors in Unreal Engine games has seen progress, with a recent discovery in the boost clock management code offering a partial solution. Reports initially linked crashes to this bug affecting 13th and 14th-Gen Core i9 models, but Intel noted instability also affects Core i7 models without eTVB.

As a temporary fix, Intel advised motherboard partners to implement an Intel Baseline Profile in BIOS/UEFI to ensure proper power and current limits for affected CPUs.

Default power limits on Core i7 and i9 processors prevent overheating but also restrict sustained performance. When motherboard manufacturers increase limits to 250 W, CPUs briefly achieve higher clock speeds but struggle to sustain them at lower power settings like 150 W or below.

However, the impact on performance is less noticeable in games that heavily utilize GPU rather than CPU resources.

In another recent update, Intel appears poised to discontinue its $25 billion factory plan in Israel, as per Israelifinancial newssite Calcalist. Notably, Intel neither confirmed nor denied the report.

When asked, Intel cited the necessity to adjust major projects to evolving timelines, affirming Israel’s significance as a pivotal global hub for manufacturing and research and reiterating its commitment to the region.

Intel emphasized the need to adjust project timelines in their industry due to evolving business conditions and market dynamics. The company’s management team acknowledged that decisions are shaped by responsible capital management practices.

The Israeli government’s previously approved a $3.2 billion grant for Intel in December aimed to support the construction of a $25 billion chip plant at its existing Kiryat Gat site, reinforcing Intel’s global supply chain strategy alongside investments in Europe and the U.S.

A Cautious Buy

Recent headlines on INTC stock reveal why its shares stalled post-sell-off this spring. Intel introduced new AI chips like Lunar Lake for AI-enabled PCs, yet this failed to boost stock performance, possibly because of flat PC sales predicted for 2024 by IDC. 

Intel’s stock trades at a low enterprise value/EBITDA ratio of 13.5-times, despite earnings per share projections rising from $1.02 to $1.81 next year. Analysts may be overlooking the potential gains from Intel’s AI chips and manufacturing operations. 

Intel’s AI ambitions extend beyond AI-PCs to Xenon AI chips for data centers, but competitors’ advances may overshadow Intel’s late entry into this market segment. That said, it’s safe to say INTC is still a buy, but investors should know the risks that comes with it.

On the date of publication, Chris MacDonald did not hold (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 Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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