Source: PaxForex Premium Analytics Portal, Fundamental Insight
Intel has had a rough year in 2024, with its stock plummeting 60%. The company's disappointing second-quarter results, released on August 1, exacerbated the situation. Intel investors were dealt a severe blow when the stock dropped 26% in a single day following the earnings report, which revealed a big miss on the bottom line, poor guidance, a suspended dividend, and looming layoffs. Despite these challenges, the stock still has a median 12-month price target of $25 among analysts, suggesting a potential 25% increase from current levels. But is this optimistic outlook realistic given the difficulties Intel is facing?
Intel's recent results and its comparison to rival Advanced Micro Devices (AMD) illustrate the company's struggles in key markets. In the second quarter, Intel's Client Computing Group (CCG) reported a modest 9% year-over-year revenue increase to $7.4 billion. In contrast, AMD's client segment saw a 49% revenue jump during the same period, highlighting Intel's difficulties in capturing growth opportunities, particularly in the notebook and desktop CPU markets.
The rise of artificial intelligence (AI)-enabled computers presents a significant opportunity, with market research firm Canalys forecasting a 44% annual growth rate for AI PCs between 2024 and 2028. However, Intel's performance suggests that it may be missing out on this AI-driven market boom, while AMD is gaining a larger share. This is evident from the latest market share data, where AMD gained 3.6 percentage points in desktop CPUs and 3.8 percentage points in notebook CPUs during the second quarter of 2024, both at Intel's expense.
Intel has ambitious plans to ship 40 million AI PCs by the end of 2024, supported by the launch of its AI-focused Lunar Lake CPUs. However, the company's guidance indicates that its AI PC strategy isn't yielding immediate results. Intel's revenue forecast for the current quarter is $13 billion at the midpoint, representing an 8.5% decline from the same period last year. This is worse than the 1% revenue contraction seen in Q1.
Intel's CCG segment, which accounts for 58% of its revenue, is under pressure, and the company's guidance doesn't inspire confidence. Meanwhile, Intel is also losing ground to AMD in the server CPU market, a sector poised for growth due to the increasing demand for AI servers. In the second quarter, Intel's share of the server CPU market dropped by 5.6 percentage points, while AMD's data center revenue soared by 115% year over year to a record $2.8 billion.
Despite its challenges, Intel's stock is trading at high valuation multiples - 87 times trailing earnings and 79 times forward earnings - far above the US technology sector's average price-to-earnings (P/E) ratio of 46. These high multiples are the result of a sharp decline in Intel's earnings. The company reported adjusted earnings of just $0.02 per share in Q2, down from $0.13 per share in the same period last year. Moreover, Intel's Q3 forecast predicts an adjusted loss of $0.03 per share, compared to a profit of $0.41 per share in the year-ago quarter.
Given Intel's poor performance and expensive valuation, it seems unlikely that the stock will reach the one-year median price target of $25. In fact, the stock could continue to decline, possibly approaching the Street-low price target of $17, which would represent a 15% drop from current levels.
Intel's struggles in key markets, poor guidance, and expensive valuation make it a risky investment at this time. The company's challenges, particularly in the AI and server CPU markets, suggest that its recovery may be slow and uncertain. Given the better opportunities available in the semiconductor space - especially those focused on AI - investors would do well to stay away from Intel for now.
As long as the price remains above 18.50, follow the recommendations below
- Time frame: D1
- Recommendation: long position
- Entry point: 19.50
- Take Profit 1: 21.00
- Take Profit 2: 23.00
Alternative scenario:
If the level of 18.50 is broken down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 18.50
- Take Profit 1: 16.50
- Take Profit 2: 15.00
