Why Did Intel Stock Witness The Worst Crash In Its 50-Year History?

Intel (NASDAQ: INTC) stock has nosedived almost 60% since the beginning of the year – a period that also saw the company’s worst single-day decline of 26% at the beginning of this month. In sharp contrast, the company’s peers in the semiconductor industry Micron Technology (NASDAQ: MU), up 21%, Nvidia (NASDAQ: NVDA), up 161%, and Applied Materials (NASDAQ: AMAT), up 25%, have comfortably outperformed the wider market. Hence, the pain points are specific to Intel, and the negativity surrounding the company’s health and outlook continues to exert pressure on the stock’s performance.

Over the last few years, Intel has struggled to maintain its leadership position in the global chip market. The company has witnessed a drop in market share across the globe. Moreover, the rise in mobile devices and increasing demand for AI chips have challenged the company’s core business. Consequently, Intel’s revenue per share (RPS) and earnings per share (EPS) in the last twelve months have dropped 34% and 54% respectively from fiscal 2021, which is commensurate with the correction in stock price by ~60% in this period.

While the management has put a turnaround blueprint in place, the resignation of Lip-Bu-Tan from Intel’s board has raised investor concerns. We, however, expect a modest turnaround in business, going forward, and estimate Intel’s revenues to touch $59 billion in FY2024 with an adjusted full-year estimated EPS of $1.34. So, INTC stock is likely to have overcorrected to around $20 as against its fair value of $30 – Trefis’s estimate for Intel’s valuation. 

Does INTC stock look attractive now?

Overall, the performance of INTC stock with respect to the index has been quite volatile. Returns for the stock were 6% in 2021, -47% in 2022, and 95% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that INTC underperformed the S&P in 2021 and 2022. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; including other heavyweights in the Semiconductor sector including AMD, MU, and AMAT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could INTC continue to face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months – or will it see a strong jump?

Moving forward, Intel expects its revenues to remain at a similar level in Q3 FY2024 and a loss at the operating level. But a turnaround may be expected in Q4, which has traditionally been a strong quarter for Intel. Successful implementation of Intel’s cost optimization initiatives would be a key driving factor in the recovery of the stock to its fair value level.

[1] Returns as of 8/22/2024
[2] Cumulative total returns since the end of 2016

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