INTC Stock Forecast: Time to Dump Intel? AI Shift Wrecks Turnaround Hopes.

Stocks to sell

From late 2023 to recently, Intel (NYSE:INTC) stock appeared to be on the rebound. However, sentiment has shifted after its latest quarterly results. The company’s sought-after AI growth has lost momentum, and uncertainty around its turnaround plans and its foundry ambitions have raised concerns. This is central to this INTC stock forecast.

Moreover, the company also postponed a $20 billion Ohio microchip plant, originally set for 2025, to late 2026. This setback follows disappointing financial guidance, causing an 11% stock drop. Q4 earnings exceeded expectations, but Q1 forecasts fell short, with PC and server chip sectors projected at the lower end. INTC stock declined by 10% for the year.

Recent Earning Reports

Intel recently reported Q4 earnings of 54 cents/share on $15.41B revenue, surpassing analyst expectations. Compared to the previous year, earnings surged from 10 cents per share on $14.04B sales.

Intel projected Q1 adjusted earnings at 13 cents/share on $12.7B sales, missing analyst forecasts of 34 cents/share on $14.24B sales. Last year’s Q1 saw a 4 cents/share loss on $11.72B sales. Under GAAP, Intel anticipates a 25 cents/share loss in Q1.

Intel’s CEO, Pat Gelsinger, informed analysts that while PC and server chip sectors are steady, subsidiary weaknesses, such as Mobileye and programmable chip units, and divestitures impact overall sales. Gelsinger assured no market share loss and strengthening products. 

The company achieved $2.7 billion in net income (63 cents/share), a turnaround from a $700M loss (16 cents per share) last year. Q4 saw a 10% sales increase, breaking seven quarters of declining revenue. Additionally, the company’s gross margin came in at 40%, down 2.6 percentage points, a steep drop.

Discouraging Outlook

During a conference call with analysts, CFO David Zinsner attributed the weak Q1 forecast to “material inventory corrections” in automotive and programmable chips. CEO Pat Gelsinger views this as a temporary setback, anticipating growth in revenue and EPS throughout FY 2024.

Intel’s Q4 saw a boost from the PC sector, with the Client Computing Group’s revenue surging 33% to $8.8B. Overall revenue increased 10%, but declines in data center and networking chips countered PC gains. Data Center and AI unit sales dropped 10% to $4B, while Network and Edge business sales fell 24% to $1.5B. This is a vital part of this INTC stock forecast.

Intel anticipates a double-digit drop in first-quarter data-center revenue due to the transition from traditional servers to AI systems, led by competitors AMD and Nvidia. Needham analyst Quinn Bolton downgraded Intel stock to hold, citing increased competition and shifting spending priorities towards AI.

Delayed Ohio Project

Intel also recently delayed its $20 billion Ohio chipmaking project due to market challenges and slow grant rollout. Construction is now targeted for late 2026. On this news, shares dropped 1.5% in extended trading, as investors digest the company’s updated project completion timeline amid uncertain chip demand.

Spending shifted to AI data servers, led by Nvidia and AMD, reducing demand for Intel’s traditional server chips.

Avoid Intel for Now

Analysts anticipate Intel’s earnings recovery in 2024-2025, with EPS rising from $1.36 to $2.33. Though unlikely to match competitors’ valuations, AI chip-driven growth could boost stock. Near-term chip demand uncertainty may impact stock. Patience advised for current holders, and a cautious approach for potential buyers.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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