As investors probably already know, Intel Corp (INTC) has become the black sheep of the semiconductor family. Late in the process of shifting from CPUs to GPUs, Intel has lost industry leadership to Nvidia (NVDA) and long-term rival Advanced Micro Devices (AMD). That fact becomes crystal clear when we consider that the market cap of NVDA stock is now about 40 times that of Intel.
With Intel stock at a low ebb, new leadership at the company, and some acquisition interest since Intel’s dark days in August, many investors may be optimistic about a turnaround in Intel’s valuation. At this point, I prefer to wait, but earn income from a commitment to buy INTC stock at a lower price. Officially, I am offering a Hold rating on INTC.
While the stock has seen larger market cap losses, Intel shares’ Aug. 1, 2024, 26% decline was the largest downward percentage move in the past decade. It was also preceded and followed by trading days with losses of more than 5%. The company has certainly disappointed investors on other occasions, but after reporting its second-quarter 2024 results, there was little appetite from contrarian investors to buy the dip. Intel’s entire business relevance was questioned by some analysts when margins fell sharply and the company announced plans for layoffs.
The company also suspended its dividend. Those who looked closer noticed that Intel’s free cash flow (FCF) had already turned negative in 2022 and the company had net debt of almost $30 billion, despite its declining prospects. Intel had spent more money than it was bringing in since the start of 2023, and its second-quarter 2024 results essentially served as a D-Day for the company’s existing arc and strategy.
While there has been significant pain for investors, INTC shareholders should be grateful that very few major dividend funds/ETFs owned shares this summer. Otherwise, sales would have been much worse.
I continue to believe that Intel has value. The company has tens of thousands of patents and a long-standing reputation for reliable chips. While the company’s reputation with investors could be seriously damaged, its reputation with existing PC customers should be less damaged. That part of the business should continue to chug along as the company works to regain its footing and improve its technological competitiveness for the age of AI.
As for graphics processing units, I imagine the new leadership team is setting modest goals. Challenging Nvidia and AMD head-on doesn’t seem realistic, at least not in the short term. Working to find a useful niche, like the Arc B580, which has received some positive reviews within the value space, seems like a good medium-term goal.
I think the company will have plenty of restructuring options to consider, such as splitting the Foundry and Products business, as has been rumored, and/or selling off part or all of the company. I think it’s a positive sign that Intel hasn’t rushed to make a transaction with Qualcomm (QCOM) or other interested parties yet. No company wants to sell its business at its maximum point of weakness unless it is absolutely necessary.
One of the things that concerns me is the co-CEO situation that has now arisen between Michelle Johnston Holthaus and David Zinsner. With so many important decisions to be made, having two people at the helm can lead to gridlock.
Shares of INTC fell slightly below the $20 level in August/September, but recovered above $26 after better-than-expected Q3 results in early November. It was a relief for investors to see margins recover. However, that shine has worn off and the stock is back near $20 following the retirement of ex-CEO Pat Gelsinger.
I think there could be another decline in INTC stock as soon as this month, due to tax loss sales. In addition, some actively managed funds may want to drop INTC from their annual reports from 2025 onwards.
When Intel stock crumbled in August, I sold Put Options for $17.50, and they recently expired, allowing me to collect the premiums. I recently re-entered that trade and wrote some $18 put options on INTC in April 2025, which are trading at a premium of about $1.17 (or $117 per contract). Should Intel’s stock fall below $18 and the put options be exercised against me, I will essentially have taken a long position on INTC at $16.83. That’s definitely a level I feel comfortable with.
If INTC stock stabilizes and doesn’t fall below $18 on April 17, 2025, I get to keep the option premium of ~$117 per contract.
A lot of Wall Street analysts are on the fence when it comes to Intel stock. Of the 29 analysts who follow INTC, only one has a buy recommendation, compared to 22 hold recommendations and six sell recommendations. However, the average INTC price target is $24.43, which represents an upside of more than 20% from the current share price.
View more INTC analyst ratings
While I believe Intel can recover, I’m not ready to buy common stock just yet. There is a reasonable risk that the shares could retest their low of $18.51 from early September 2024 as the market weighs the new leadership team. While the company is likely to post a full-year loss for 2024, analysts on average expect a recovery to earnings per share of $0.98 in 2025 (although estimates are wide).
That would put INTC’s price-to-earnings ratio at around 21x, which is not a bargain price at all for a company with the uncertainties that this business faces. I prefer to buy INTC at a price-to-earnings ratio of 17x by selling the April 2025 $18 put options and earn some income if the option is not used against me. Officially, I currently have a Hold rating on Intel stock, as does most of Wall Street.
