Intel(NASDAQ: INTC), the world’s largest producer of x86 CPUs for PCs and servers, was as soon as thought of a dependable blue chip tech inventory. It had a large moat, generated secure earnings, and paid out dependable dividends.
However over the previous decade, that moat evaporated, its market share shriveled, and its earnings plunged. It lastly suspended its dividend final 12 months, and it is now being led by its fourth CEO in simply seven years. That is why Intel’s inventory has declined almost 60% over the previous three years.
However may that pullback characterize a superb shopping for alternative for buyers who plan to carry it for no less than one other three years? Let’s evaluation its greatest challenges to search out out.
Picture supply: Getty Photographs.
Intel is an built-in system producer (IDM) that designs, manufactures, and sells most of its personal chips. That capital-intensive enterprise mannequin units it other than “fabless” chipmakers like Superior Micro Gadgets and Nvidia, which outsource their manufacturing to third-party chip foundries like Taiwan Semiconductor Manufacturing (TSMC) and Samsung.
Intel’s foundries as soon as produced the world’s smallest and densest chips. However as an alternative of ramping up its R&D spending to take care of its lead within the “course of race,” it squandered an excessive amount of of its money on clumsy acquisitions, wasteful buybacks, and massive dividends.
In consequence, Intel struggled with chip shortages and protracted delays as TSMC pulled forward within the course of race with a secure provide of extra superior chips. AMD, which redesigned its chips and outsourced its manufacturing to TSMC, then drew away Intel’s PC clients with cheaper and extra power-efficient chips. In line with PassMark Software program, Intel’s year-end share of the x86 CPU market shrank from 82.2% in 2016 to 58.9% in 2024. AMD’s share throughout that point greater than doubled from 17.8% to 38.4%.
As Intel misplaced its core market, it missed the seismic shift towards synthetic intelligence (AI) chips — a booming market that Nvidia conquered with its high-end GPUs for information facilities. Nvidia additionally changed Intel within the Dow Jones Industrial Common final November.
As Intel struggled with its existential disaster, it endured abrupt strategic shifts beneath three CEOs. Brian Krzanich, who led Intel from 2013 to 2018, “di-worsified” Intel’s enterprise with too many acquisitions. Successor Bob Swan divested a few of these noncore companies, aggressively lower prices, and even thought of turning Intel right into a fabless chipmaker earlier than he was ousted in early 2021.
Pat Gelsinger then doubled down on upgrading Intel’s fabs to catch as much as TSMC, however these efforts relied closely on authorities subsidies and did not impress too many buyers earlier than his dismissal final December.
After Gelsinger’s departure, rumors swirled relating to a possible sale of Intel to TSMC and Broadcom. President Trump even inspired TSMC, which is increasing its presence within the U.S. with extra fabs, to take over Intel’s crops.
However this March, Intel employed Lip-Bu Tan, the previous CEO of chip designer Cadence Design Programs, as its new CEO. Tan does not appear thinking about promoting the chipmaker. As a substitute, he desires Intel to enhance its engineering capabilities, develop extra CPUs with built-in AI options, and increase its struggling foundry enterprise. He additionally warned that “forms kills innovation” and needs Intel to simplify and streamline its sprawling enterprise.
Nevertheless, these imprecise plans do not sound too totally different from Gelsinger’s methods — and it’ll take no less than a number of quarters to inform if Tan can reform Intel’s growing old growth mannequin and stabilize its shaky enterprise. For now, Tan wants Intel to ship a gradual provide of its current-gen Meteor Lake chips, gear up for the launch of its next-gen Panther Lake CPUs this 12 months, and take care of the Trump administration’s “Liberation Day” tariffs and ongoing push to finish its CHIPS Act subsidies for domestic chipmakers.
For now, analysts count on Intel’s income to develop at a compound annual development fee (CAGR) of 4% from 2024 to 2027. And after two years of web losses, they count on it to return to profitability in 2026 and develop its EPS by 187% in 2027.
We must always take these optimistic estimates with a grain of salt, however they is perhaps lifelike if Tan reboots Intel’s enterprise in the identical approach Lisa Su saved AMD. Like Su, Tan goes again to the drafting board by creating recent chips once more — however we nonetheless do not know if that Eleventh-hour effort will fare any higher than Intel’s earlier plans.
At $19 a share, Intel trades at 17 instances its estimated earnings for 2027. Assuming Intel matches Wall Avenue’s estimates, grows its EPS by one other 20% in 2028, and trades at an affordable 20 instances ahead earnings by the primary quarter of 2028, its inventory value would possibly rise about 37% to $26.20 per share throughout the subsequent three years.
That may be a good three-year acquire, however Intel merely does not have a lot room to make any extra errors. If Tan’s turnaround fails to stabilize Intel’s enterprise, its inventory may both stagnate or slip even decrease over the subsequent three years. So whereas it may probably bounce again by 2028, I might fairly anticipate a number of extra quarters earlier than pulling the set off.
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Leo Sun has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Superior Micro Gadgets, Intel, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Idiot recommends Broadcom and recommends the next choices: brief Could 2025 $30 calls on Intel. The Motley Idiot has a disclosure policy.
