Where will Intel stocks be in 1 year?

This turned out to be a terrible year for Intel (NASDAQ: INTC) investors so far, as the chipmaker’s shares have plunged 60% in 2024, and the stock’s decline was exacerbated by 2024 second-quarter (ended June 29) results released on August 1.

Intel investors were in for a rude shock as shares fell 26% in a single day after its quarterly report. This sharp sell-off was triggered by Intel’s big miss, weak guidance, dividend suspension and upcoming layoffs. So the dive in Intel stock following its recent results seems justified. However, the stock has a 12-month median price target of $25 across the 45 analysts covering Intel, indicating a 25% upside from current levels.

But can Intel stock really deliver such gains next year in light of the challenges it faces? Let’s find out.

Intel’s failure to contend in key markets does not bode well for its future

A closer look at Intel’s second quarter results and comparing them to the rival Advanced microdevices (NASDAQ: AMD) it will make it clear that the company is missing out on huge growth opportunities.

For example, Intel’s client computing group (CCG) revenue rose just 9% year-over-year in Q2 to $7.4 billion. This was in stark contrast to AMD’s extraordinary 49% year-over-year increase in customer segment revenue in the comparable quarter to $1.5 billion. Intel and AMD customer segments address the notebook and desktop CPU (central processing unit) markets.

It’s worth noting that the PC market has been in a revival mode lately thanks to the advent of artificial intelligence (AI)-enabled computers, which market research firm Canalys believes could see 44% annual growth between 2024 and 2028. Intel’s performance, however, indicates that it may be missing out on the AI ​​PC boom, while rival AMD is gaining a larger share of the overall market.

This is evident from the latest market quotes from Mercury Research. AMD gained 3.6 percentage points in desktop processor market share in the second quarter of 2024 from a year ago at Intel’s expense. Meanwhile, AMD’s share of the notebook processor market increased by 3.8 percentage points.

All of this explains why AMD’s customer revenue growth is much faster than Intel’s. More importantly, both companies are trying to take advantage of the growth of the AI ​​PC market, with Intel showing that it plans to ship 40 million AI PCs by the end of 2024. Intel recently launched a new line of AI-centric client processors with code name Lunar Lake to begin shipping in the current quarter.

The story continues

However, Intel’s guidance suggests that its foray into the AI ​​PC market is not paying off, at least in the short term. The chipmaker had targeted revenue of $13 billion in the current quarter, in the middle of its guidance range. That would be an 8.5% decline from the same quarter last year and a bigger drop than the 1% revenue decline Intel witnessed in Q1.

As CCG is Intel’s largest business segment, accounting for 58% of its top line, the company’s weak guidance does not bode well for the health of this business. Meanwhile, Intel is giving way to AMD in the server processor market, which is expected to enjoy a good boost due to the growing demand for AI servers.

Intel’s share of the server processor market fell 5.6 percentage points in Q2 on a year-over-year basis. AMD now controls just over 24% of this market and delivered record data center revenue of $2.8 billion in Q2 (a 115% year-over-year increase) thanks to its improved influence in server processors. Intel’s data center and AI ( DCAI ) segment revenue, on the other hand, fell 10% year over year to $3.8 billion.

AMD’s data center business also benefited from growing sales of the company’s AI accelerators. AMD expects to generate more than $4.5 billion this year from those sales. This suggests that it could be well ahead of Intel in this area, as the latter is forecasting $500 million in revenue from sales of its AI accelerators in the second half of 2024.

So the odds seem stacked against Intel, and analysts have lowered their revenue expectations.

Evaluation is another concern

Intel stock is currently trading at an expensive 87 times trailing earnings and 79 times forward earnings. These multiples are much higher than the US tech sector’s average price-to-earnings (P/E) ratio of 46.

Intel’s weak quarterly performance and guidance clearly indicate that it is unable to justify such expensive multiples. Moreover, the expensive earnings multiples are the result of the company’s bottom line falling sharply of late. Its adjusted earnings fell to just $0.02 per share in Q2, from $0.13 per share in the same quarter last year. The Q3 forecast calls for an adjusted loss of $0.03 per share, compared with a profit of $0.41 per share in the year-ago period.

So Intel stock could continue to head south due to its poor outlook and expensive multiples, which is why it’s unlikely to hit the median one-year price target mentioned earlier. However, it won’t be surprising to see this semiconductor stock move closer to its low street price target of $17 in the coming year, which would be a 15% drop from current levels.

Therefore, investors would do well to stay away from Intel, given that there are better opportunities available in the semiconductor space to take advantage of catalysts like AI.

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices. The Motley Fool recommends Intel and recommends the following options: Short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.

Where will Intel stocks be in 1 year? was originally published by The Motley Fool