Shares of fallen semiconductor great Intel (NASDAQ: INTC) have continued to trend lower amid their unprecedented fall from glory. Intel stock continues to act as a falling knife, and it’s unclear when it will finally be ready to ricochet. Though I’m unsure if Intel can return to its former glory, I remain neutral on the stock at today’s depressed multiples. There’s a huge 5% dividend yield that’s more than secure.
The latest quarterly results were quite abysmal. They fell well short of estimates, with per-share earnings coming in at $0.29, a far cry below the $0.69 consensus estimate. Driving the decline are many of the environmental headwinds that most firms have felt this year.
Intel’s free-fall can’t be blamed on anyone but itself, though. Intel is losing ground to rivals and fast. Even with a multi-year plan to return to its former glory, engineering such a turnaround could prove difficult, given the momentum of some of its peers.
In the fast-moving tech world, it’s hard to close the distance once a firm has fallen behind. Undoubtedly, Intel is an old-school market darling that has endured such a painful fall. Whether it can get up after such a hard fall remains the million-dollar question. Given its age and competitive environment, getting back on its own two feet could prove difficult as momentum tends to be hard to stop (or reverse) in the chip space.
With new CEO Pat Gelsinger aboard, Intel has the right man to engineer a comeback. If Intel can close the gap and retake the lead, the rewards could be enormous from current levels, and if Intel continues to lose market share to rivals, it’s arguable that such is already well baked into the share price after a more than 55% haircut.
Intel Has a Tough Fight Against AMD
Just because Intel’s dividend payout is sustainable does not mean the firm shouldn’t at least consider trimming it. Sure, Intel is continuing to spend aggressively, and arguably, the firm can regain the chip lead without having to bring its dividend to the chopping block. Intel is by no means skimping on spending. That said, Intel needs to go up against AMD (NASDAQ: AMD), an impressive chip rival that doesn’t have a lofty dividend commitment weighing it down.
Further, it’s arguable that any additional spending from Intel could help accelerate efforts to close the gap with peers and claw back the market share it lost in recent years.
Earlier this year, Intel announced a plan to spend more than €33 billion on R&D and manufacturing within the European region. Intel also plans to split a $30 billion investment with Brookfield Asset Management (BAM) to create an Arizonan chip facility. Such big spending should give Intel’s “IDM 2.0” strategy a nice shot in the arm.
While I’m sure Intel can make good on its strategic plan, AMD will also be busy on cutting-edge innovations of its own, from consumer-class CPUs to ultra-fast server chips. AMD’s still hungry to take more share with its latest lineup of competitive offerings. In a nutshell, Intel needs to outdo AMD, or no turn of the tide should be expected over the medium term.
Can Intel Stock Bounce Back from a Brutal Q2?
After a huge fumble, Intel needs a bounce-back quarter to win back the love of its yield-hungry shareholders. Ongoing supply-chain hiccups and a potential chip glut on the horizon will not make matters any better. Indeed, the chip industry could be in for a doozy as 2023 rolls around. In any case, Intel may use the coming recession as a means to take some share back from its competitors if it’s to put an end to its horrific decline.
Intel is more than capable of making up for lost time in future quarters. However, the stakes are high as the chip giant looks to swim against the tides. At writing, the stock trades at 6.3x trailing earnings, 1.6x sales, and 5.3x cash flow.
The stock looks cheap if Intel proves it can outcompete its disruptors. For now, Intel is a deep-value play that’s not without its share of risks. If the firm can out-innovate its peers, the type of relief to be had in the stock could be sizeable.
What is the Target Price for INTC Stock?
Turning to Wall Street, INTC stock comes in as a Moderate Buy. Out of 30 analyst ratings, there are four Buys, 17 Holds, and nine Sells.
The average Intel price target is $38.55, implying upside potential of 31.6%. Analyst price targets range from a low of $30.00 per share to a high of $55.00 per share.
Conclusion: Intel Faces a Tough Road Ahead
Intel’s making all the right investments to stage a comeback. However, AMD will be doing everything in its power to raise the bar even higher, perhaps at a much quicker rate than expected. Semis are a tough place to be in right now, making a swift recovery in deeply-discounted shares of Intel less likely.
