The past few years have been great for semiconductor stocks. Well, most semiconductor stocks, that is. Since OpenAI introduced ChatGPT to the world on November 30, 2022, shares of Nvidia And Advanced micro devices have increased by 721% and 83% respectively. In contrast, shares of chip-peer Intel(NASDAQ: INTC) have fallen by 25% during this period.
There’s no doubt that Intel has faced a number of challenges in recent years as its cohorts quickly move beyond them in the AI ​​revolution. However, after taking a closer look at Intel’s price movements, there may be some reasons to believe the stock is positioned for a recovery.
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Below, I’ll explore something Intel stock hasn’t done since 2022 and why I’m cautiously optimistic that better days could be in store for the chipmaker.
The chart below illustrates Intel’s price-to-sales (P/S) ratio over the past three years. The first thing I noticed is that the price hit a low of 1.5 sometime between August and September. The last time Intel’s price-to-earnings ratio reached this level was in 2022 – coincidentally around the same months in 2022.
INTC PS Ratio data according to YCharts
What I also noticed is that Intel shares started to rise after the ratio hit a low of 1.5 at the end of 2022. Furthermore, Intel shares continued to rise in 2023 – only to return to lows for much of this year.
At first glance, investors might think that Intel shares have bottomed out and that shares are destined to repeat the upward moves of 2023. However, smart investors understand that history is not an indication of future performance. You have to look for actual catalysts – and I see several potential catalysts right now that could fuel the stock’s recovery.
Image source: Getty Images.
As I pointed out above, Intel’s price-to-earnings ratio bottomed out sometime around August and September 2022 and then continued for an eternity. Do you know what else happened during this period? President Biden signed the CHIPS and Science Act into law on August 9, 2022. And do you know which company has been a major beneficiary of the CHIPS Act? It’s Intel.
Over the past two years, Intel has received tens of billions of dollars in grants and loans as part of the CHIPS Act funding. While this looks great at first glance, there are a few caveats. In fact, companies rarely receive federal funding at the time an award or grant is announced. In other words, it may take a long time before this funding is actually received. Additionally, the original dollar amount awarded may sometimes change.
The unfortunate reality is that it has taken quite some time for Intel to actually start receiving some of this funding, and some of it is coming in at slightly lower dollar amounts than initially expected. In my view, Intel’s stock price in 2023 was driven by a combination of broader euphoria around artificial intelligence (AI), coupled with optimism that the CHIPS Act would benefit the company.
Although reality has set in in 2024, I still see a number of reasons why Intel stock is recovering. First, President-elect Trump campaigned on a promise to bring manufacturing jobs from abroad back to America. Furthermore, it’s no secret that AI chips are a hot commodity – and one that requires more attention when it comes to the defense sector and the US military.
Additionally, Intel CEO Pat Gelsinger recently announced his retirement. Since Gelsinger took over as CEO at Intel in February 2021, the stock has delivered a total return of negative 53%. With such a track record, it was time for a change. I think new leadership combined with a new administration focused on domestic manufacturing and corporate America could bode well for Intel.
INTC Total Return Level data per YCharts
Honestly, I’m pretty torn about investing in Intel. While the stock appears to be recovering somewhat from the bottom of its P/S multiple, I can’t quite believe the company is going to turn things around.
While I remain optimistic about its potential, I need more concrete evidence that Intel is actually making progress. Ultimately, the funding of the CHIPS Act, the potential of a new government investing in America, and the plans for a new CEO are just too vague.
At best, I currently see Intel as a speculative purchase. But all this said, I’ll definitely be keeping an eye on the company as 2025 could very well be the start of a new run for the chipmaker.
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Adam Spatacco has positions at Nvidia. The Motley Fool holds positions in and recommends Advanced Micro Devices, Intel, and Nvidia. The Motley Fool recommends the following options: Short February 2025 $27 calls on Intel. The Motley Fool has a disclosure policy.
Intel’s Stock Just Did Something It Hasn’t Done Since 2022 Originally published by The Motley Fool
