Intel's (NASDAQ: INTC) 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?
Intel's stock value has plunged after recent earnings
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.
A risky investment compared to other tech stocks
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.
Data by YCharts
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.
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Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
