Intel’s valuation drops by $27B
Investors fear AI plan moving too slowly
Intel Corp.’s latest attempt to prove to investors that its turnaround strategy is on track instead spurred a $27-billion (U.S.) rout that further widened the gap between the chipmaker and its peers as it struggles to capitalize on investor demand for all things artificial intelligence-related.
The company has plunged 15 per cent since an April 2 update about its newly broken-out foundry division revealed a less-than-rosy outlook for operating losses in the unit. That’s pushed its year-to-date declines to 25 per cent, a stark reversal from its 90 per cent rally in 2023 and well behind strong returns from peers like Nvidia Corp. and Advanced Micro Devices Inc.
It’s also become the second-worst performing stock on the Philadelphia Semiconductor Index this year, leading only Wolfspeed Inc.
Intel’s event stoked investor fears that chief executive officer Pat Gelsinger’s plan is moving too slowly, putting the company at risk of falling even further behind the biggest AI winners. Missing out on the AI wave could spell disaster for the company especially as Wall Street sees it as the biggest technological advance since the internet — in an annual letter to shareholders, JPMorgan Chase & Co. CEO Jamie Dimon compared its impact with the steam engine.
“From a growth perspective, Intel’s lagging virtually all of their peers, and from a technological perspective, they’re also lagging all of their peers,” said David Wagner, a portfolio manager at Aptus Capital
Advisors LLC. “Once you get caught behind the ball on the technological side of things, as soon as you lose your competitive edge, it’s so hard to get it back.”
The sell-off has done little to improve Intel’s attractiveness from a valuation standpoint. The stock trades at about 24 times projected earnings over the next 12 months, compared to around 27 for the broader SOX index. Nvidia, which has surged about 500 per cent since the start of 2023, trades at roughly 34.
“Investors are more than willing to pay up for growth, to pay up for technological advancements,” but Intel’s discount to Nvidia is not enough to attract investors, Wagner added.
The latest disappointment adds to investors’ concerns about the company. Among these is its failure to respond to the competitive threat posed by Nvidia in the lucrative data centre chip market — Nvidia has taken share from Intel and now dominates in so-called artificial intelligence accelerators.
Intel’s top line “still depends significantly on legacy/low-growth PC and traditional server CPU markets exposed to longer replacement cycles” and competitive challenges and challenged by emerging ARM-based rivals,” Bank of America analysts led by Vivek Arya wrote in an April 3 note.
He added that Intel missed three of the most important cycles of the last decade — AI, mobile phones and using extreme ultraviolet lithography manufacturing — so it may take time before any turnaround gains credibility.