Is Intel Stock a Buy?

Intel (INTC -0.20%)one of the world’s largest chipmakers, has lost more than half its market value in the past five years. His business imploded while dealing with production delays, chip shortages and discordant strategic changes under different CEOs. But could Intel stock be worth buying again as it trades at its lowest prices in more than a decade?

What went wrong at Intel?

The company is the world’s largest manufacturer of x86 processors for PCs and servers. Designs and manufactures most of its own chips; its smaller competitor, AMDoutsources its production to third-party foundries such as Taiwan Semiconductor Manufacturingor TSMC.

For decades, Intel has made the world’s smallest, densest, and most powerful x86 processors. But with each generational upgrade, it became more difficult and more expensive to produce smaller chips. As a result, many chipmakers — including AMD — ditched their capital-intensive foundries and outsourced the entire manufacturing process.

Image source: Getty Images.

Intel refused to follow AMD’s lead and become a no-nonsense chipmaker, but it also fell behind TSMC and Samsunghis foundries in the “process race” to make smaller, denser chips. It tried to catch up, but those disorganized efforts stalled development and production of its own chips.

Many of its customers were frustrated by its persistent delays and shortages, so they turned to AMD for a steady supply of high-end chips made by TSMC.

That’s why Intel x86’s market share fell from 82.2% to 62.8% between the fourth quarter of 2016 and 2024, according to PassMark Software. AMD’s share nearly doubled from 17.8% to 33.2% over the same period.

Intel also missed two major technology changes. First, it hasn’t leveraged its dominance in the PC and server markets to launch a sustainable lineup of mobile chips. Instead, Arm holds has conquered that fertile territory by licensing its more energy-efficient designs to a wide range of chipmakers.

Second, it failed to note the growing importance of discrete GPUs for processing artificial intelligence (AI) applications. This trend has led many companies to modernize their data centers NvidiaHigh-end GPUs, but most of these customers haven’t prioritized CPU upgrades.

Intel still has an identity crisis

Intel needs a firm hand to guide its turnaround, but its three most recent CEOs have taken the business in different directions. Brian Krzanich, who stepped down in 2018, sought to diversify his business beyond PCs and server processors with programmable, automotive, Internet of Things (IoT) and memory chips.

His successor, Bob Swan, prioritized cost-cutting and large buybacks. He even considered turning Intel into a fabless chipmaker before he was ousted in 2021.

Pat Gelsinger, the chief architect of Intel’s i486 processor in the 1980s, then returned as CEO and promised to modernize its foundries and take on TSMC and Samsung. The company has secured billions of dollars in government subsidies to support this strategy, but this costly effort has yet to significantly close the gap with its top Asian competitors.

Intel is now reportedly looking at a spin-off of its foundry, a sale of its programmable chip business and divestment of its other non-core businesses. Gelsinger is still in charge, but those plans could completely reverse his original strategy.

Can we consider Intel a value stock?

From 2018 to 2023, the company’s revenue fell from $70.8 billion to $54.2 billion. Its earnings per share (EPS) fell from $4.48 to just $0.40, and it suspended its dividend earlier this year. That decline was caused by its divestments, market share losses to AMD, declining PC shipments and headwinds that prevent data centers from upgrading their processors.

For now, analysts expect Intel’s revenue to have a compound annual growth rate (CAGR) of 4%, as EPS has a CAGR of 38%. Those bullish estimates are likely based on expectations that Intel can ramp up production of new chips, expand its third-party foundry business and regain its lead from TSMC and Samsung.

But in its latest quarter, Intel admitted it was struggling with low yield rates for its new 18A process and crushing its own gross margins with the development of its new AI processors, which featured more native AI processing capabilities. So I wouldn’t be surprised if the company misses Wall Street’s long-term consensus estimates by a mile.

Even if Intel matches analysts’ expectations, its stock is still not a bargain. At $22.50, it still trades at 113 times next year’s earnings and 24 times its 2026 earnings. AMD and Nvidia — which are growing faster and face fewer existential challenges — trade at just 48, respectively 33 times next year’s earnings.

Therefore, I would not consider Intel a value stock at this time. Its turnaround plans are unclear and it may sell off parts to grow its business. It might be worth buying again once he finally explains what those plans are, but I wouldn’t touch him unless he gives more compelling reasons to believe in his long-term recovery.