Intel (NASDAQ: INTC) was once considered a stable long-term investment in the semiconductor market. But over the past decade, the chipmaker’s shares have fallen 26%. Even with dividends reinvested, it delivered a negative total return of 4%.
During the same period, the S&P500 increased by 192% and generated a total return of 250%. AMD‘S (NASDAQ: AMD) The share rose as much as 5,220%. Let’s take a look at why Intel stock has withered – and whether it has the potential to bounce back and generate millionaire-making profits in the future.
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Intel is still the world’s largest producer of x86 central processing units (CPUs) for PCs and servers. But according to PassMark Software, Intel’s share of the x86 CPU market shrank from 82.2% to 61% between the fourth quarter of 2016 and 2024. AMD’s share doubled from 17.8% to 35.7%.
Intel ceded the market to AMD as it struggled with production delays, chip shortages and shifting strategies under three different CEOs. Intel manufactures most of its chips in its own foundries, but AMD outsources all its production to third-party foundries, such as TSMC and Samsung.
In recent years, Intel has fallen behind TSMC and Samsung in the “process race” to produce smaller, more compact and more energy-efficient chips. Intel’s problems started with a difficult transition from 14nm to 10nm chips (2017-2020), and then worsened with even more delays in the subsequent transition to 7nm chips (2020-2023). While Intel was tripping over its own feet, AMD was developing a new generation of Ryzen CPUs for PCs and Epyc CPUs for servers. TSMC pumped out those chips in time, and many of Intel’s old customers started turning to AMD’s chips instead.
Intel also failed to gain a foothold in the mobile chip market, and its CPUs became less relevant than Nvidia‘s graphics processing units (GPUs) in the booming AI market. Missing these two key technology shifts indicated that Intel had lost its lead in the chip manufacturing market.
Pat Gelsinger, who became Intel’s CEO in 2021, initially rejected the idea that it should follow AMD’s lead, divest its foundries and become a “fabulous” chipmaker. Instead, Gelsinger doubled down on Intel’s foundry expansion, chased government subsidies and claimed it could catch TSMC by 2025.
But at the same time, Intel quietly outsourced some of its production to TSMC to relieve pressure on its own foundries. Even with that help, Intel struggled to ramp up production of its latest Meteor Lake chips last year as the development of new AI-powered CPUs compressed gross margins.
As Intel grappled with all these issues, it implemented major layoffs, divested non-core assets and investments, and even suspended its dividend in August. In September, the company announced it would spin off its foundry unit into an independent subsidiary and sell part of Altera, the programmable chipmaker it acquired in 2015. All these moves suggested that Intel was downsizing its business to survive rather than trying to outdo TSMC. Samsung.
From 2018 to 2023, Intel’s annual revenue fell from $70.8 billion to $54.2 billion, while earnings per share (EPS) fell from $4.48 to $0.40. These declines can be attributed to AMD’s loss of market share, weakness in the PC market, and the company’s continued divestitures.
But from 2023 to 2026, analysts expect Intel’s revenue and earnings per share to grow at a compound annual growth rate (CAGR) of 4% and 29%, respectively. That recovery could be driven by the stabilization of the PC market, rising chip yields and sweeping efforts to cut costs by more than $10 billion by 2025.
At $25, Intel is already trading at 29 times its expected 2026 earnings. AMD, which is growing much faster and faces fewer headwinds, is trading at 31 times its 2026 earnings. With these valuations, it’s hard to understand why anyone would want to Would choose Intel over AMD.
At best, Intel’s sales and profits could stabilize as it rolls out new chips, its cash flow could remain positive and it could restore its dividend. If the company checks these boxes, it could become a stable blue chip dividend play again. However, I don’t see Intel stock doubling or tripling in the next few years. It’s clearly a mature tech stock facing an existential crisis – not a hyper-growth company that can post profits for millionaires over the next decade.
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Advanced Micro Devices, Intel, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: Short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
Can Intel Stock Help You Become a Millionaire? was originally published by The Motley Fool
