A Turnaround Scenario For Intel Stock To Reach $60

Intel stock (NASDAQ: INTC) is trading at about $19 per share, its lowest point in over a decade. Could the stock rise by over 3x per share in the next few years? Does this sound a bit ridiculous?  Consider this – Intel stock was trading at levels of about $60 per share just about three years ago.  Although Intel has been plagued by multiple issues, including a tough PC market, market share losses to AMD in the PC and server space, significant manufacturing missteps, as well as the tech industry’s broader transition from CPUs to GPUs in the generative AI era, the company has several initiatives underway that could turn things around. In this analysis, we outline a possible scenario that could help drive Intel stock up to levels of around $60 per share. We consider three key metrics, namely revenues, net margins, and price-to-earnings multiple. See our counter scenario which explores how Intel Stock Could Dive To $10

Intel has been a volatile stock and the decrease in INTC stock over the last 3-plus year period has been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for the stock were 6% in 2021, -47% in 2022, and 95% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it 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. But how could Intel possibly regain its footing and rise again? Let’s delve into the company’s revenue prospects to begin with.

Intel’s Revenues Could Pick Up Considerably

Intel’s sales have declined considerably of late. Intel revenues declined from $79 billion in 2021 to $54 billion in 2023 and revenues are expected to decline by about 3.5% this year.  Intel revenues are projected at about $52 billion for 2024, per consensus estimates. If the company can turn the business around, driving revenues up by about 12% each year over the next two years, following the slight projected decline this year, revenues could grow to about $65 billion by 2026, or by roughly 1.23x between 2023 and 2026.

How can Intel do this?

Although Intel’s CPUs have been losing ground to rival AMD in the PC and server markets, the company’s pipeline of new chips looks promising. Intel’s new Lunar Lake chip designed for laptops and ultra-compact devices as well as its Arrow Lake chip for desktops, will be manufactured by TSMC using its advanced 3nm process. This could potentially put Intel ahead of AMD, which leverages TSMC’s older 4nm process node for its competing products. Intel’s latest server chips, such as the Sierra Forest and Granite Rapids, should also compete more favorably with AMD, using the new 3 nanometer “Intel 3” process node. The broader recovery of the PC market, coupled with stronger products, is likely to help Intel boost its revenue.

Intel is also doubling down on the AI processor space with its Gaudi 2 and upcoming Gaudi 3 AI accelerators. The systems are priced at about $65,000—about a third of Nvidia’s comparable offerings. Despite Nvidia’s lead, Intel is expanding its AI portfolio, including its Lunar Lake AI chip for PCs. Intel projects $4 billion in AI chip sales for 2024, with Gaudi 3 expected to contribute $500 million. If these new chips find favor with customers, Intel could boost its revenues further.

Do you think Nvidia is the best AI stock pick? Think again. This data center company has been growing its sales even faster than Nvidia and trades at a more attractive multiple.

Intel’s manufacturing business could also see a turnaround as the company rolls out its new 18A process, the company’s most advanced manufacturing technology to date. While production on this process is expected to begin in 2025, Intel announced in early August that it had reached critical milestones.  Besides helping make Intel’s CPUs and AI chips more competitive, the manufacturing improvements should allow Intel to grow its foundry business. The first external foundry customer is expected to tape out (move from design to foundry for manufacturing) on the 18A node in the first half of 2025. This could also boost revenues to a certain extent.

Intel’s Margins Have Much Room For Expansion

Intel’s adjusted net margins (net income, or profits after expenses and taxes, calculated as a percent of revenues) have been on a declining trajectory – they fell from levels of over 28% in 2021 (and in the years before that) to about 11% in 2022 amid declining sales and market share losses. Adjusted net margins fell to just about 8.5% in 2023 due to further sales declines and considerable losses in the foundry business.  That being said, multiple trends point to a recovery, and margins could rise to about 20% by 2026.

Why? 

Firstly, Intel has been looking to cut costs considerably. The company announced a massive layoff recently to reduce over 15% of its workforce. Intel is also planning on a 35% cut to costs for its sales and marketing group. Moreover, as Intel’s next-generation manufacturing technology matures, and we could see utilization rates of its production facilities improve via more in-house manufacturing of Intel’s latest chips and fabrication for third parties. Separately, more competitive CPU products could also drive up Intel’s pricing power and margins.

How Does This Impact Intel’s Valuation? 

Now at the current market price of close to $20 per share, Intel trades at about 19x trailing earnings. The number rises to 75x for 2024, considering that the company is expected to see profitability fall this year amid continued revenue contraction and transition to new product lines. So what explains the difference in Intel’s P/E multiple using 2023 and 2024 earnings? It’s because investors are betting that things could get better for Intel.

If we combine the scenario we detailed above – which assumes revenue growth of roughly 1.23x between 2023 and 2026 with margins growing from 8.5% in 2023 to about 20% in 2023, a roughly 2.3x increase, this would mean that adjusted net income could grow by roughly 2.8x, from about $4.4 billion in 2023 ($1.05 per share) to about $12.5 billion (about $2.95 per share).  Good times make it easier to imagine even better times – and when that happens, investors could begin to see Intel in a more favorable light, re-assessing Intel’s recovery path. For example, if Intel’s investors assign a multiple of 20x following its stronger growth trajectory, this could translate into a stock price of about $60 per share by the end of 2026, assuming earnings of $2.95 per share.

What about the time horizon for this positive-return scenario? While our example illustrates this for a 2026 timeline, in practice, it won’t make much difference whether it takes two years or four.  If the turnaround takes hold, with Intel improving its key metrics, we could see meaningful gains in the stock. This is a storied company with a glorious past and valuable know-how in a growing market. Our analysis suggests that a win will be at hand – it just may not be quick and may require patience. 

And it could be a bumpy ride for a while. There is certainly a case to be made for sizable long-term gains from Intel stock, but the Trefis High Quality (HQ) Portfolio could be right up your alley if consistent outperformance is at the top of your list.

While Intel stock could turn around over the coming years, it is helpful to see how Intel’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 9/11/2024
[2] Cumulative total returns since the end of 2016

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