Amid fierce competition, are you buying, selling, or holding Intel (INTC)?

Intel Corporation (INTC)A representative semiconductor company is currently going through a difficult phase in which its financial outlook is shrinking and it is difficult to maintain competitiveness in the semiconductor industry. Intel is lagging behind Many tech stocks in the S&P 500 This year, while rival chipmakers NVIDIA Corporation (NVDA) Ranked 3rd in the index.

We will now evaluate the risks and opportunities associated with investing in Intel amidst competitive pressures.

Strategic activities to respond to fierce competition

Amid increasing competition in the technology sector, INTC, a leading producer of processors that power PCs and laptops, has aggressively expanded its presence in the AI ​​space to keep up with its peers.

Last month, the company announced the creation of World. The largest neuromorphic system, called Hala Point, powered by Intel’s Loihi 2 processor. First deployed at Sandia National Laboratories, the system supports research into the brain-inspired AI of the future and addresses issues related to AI efficiency and sustainability.

Intel also announced on April 9th New AI chip ‘Gaudi 3’ unveiled, which was intended to compete with NVDA’s dominance in popular graphics processing units. The new chip boasts more than 2x the power efficiency of NVDA’s H100 GPU and can run AI models 1.5x faster. The company expects to generate more than $500 million in sales from its Gaudi 3 chip in the second half of this year.

In March Reuters reported INTC plans to spend $100 billion across four U.S. states to build and expand plants, backed by $19.5 billion in federal grants and loans (with an expected $25 billion in additional tax incentives). CEO Pat Gelsinger plans to transform a vacant lot near Columbus, Ohio, into “the largest AI chip manufacturing site globally” by 2027, laying the groundwork for Intel’s ambitious five-year spending plan.

These advancements will help companies remain competitive and meet the growing demand for AI-based solutions across a variety of industries.

Solid first quarter results, uncertain outlook

for First quarter For the year ended March 30, 2024, INTC’s net revenues surged 8.6% year over year to $12.72 billion, primarily driven by growth in its personal computing, data center and AI businesses. However, the foundry segment’s revenue was $4.4 billion, down about 10% compared to the same quarter last year.

Intel’s gross profit increased 30.2% year-over-year to $5.22 billion. It also reported non-GAAP operating profit of $723 million in 2023, compared to an operating loss of $294 million. Additionally, non-GAAP net income and non-GAAP earnings per share were $759 million and $0.18 net. In the same quarter last year, it posted a loss and loss per share of $169 million and $0.04, respectively.

Solid financial performance highlights significant innovation across our client, edge and data center portfolios, driving double-digit product revenue growth. Total Intel products generated revenue of $11.9 billion in the first quarter of 2024, up 17% from the same period last year. Client Computing Group (CCG) contributed approximately 31% of the unit’s revenue.

However, the company lowered its outlook for the second quarter of 2024. The company expects revenue to be between $12.5 billion and $13.5 billion, and non-GAAP earnings per share of $0.10.

Following the company’s weak guidance for the current quarter, Intel plummeted by 13% It eclipsed its first quarter results on Friday morning. Additionally, the stock has plunged nearly 15% in the past six months and more than 39% since the beginning of the year.

conclusion

INTC beat analyst estimates for revenue and earnings in the first quarter of 2024, but achieving a full recovery appears unlikely. The chipmaker provided a weak outlook for the second quarter, validating concerns about its ongoing efforts to capitalize on the AI ​​boom amid competitive pressures.

Going forward, analysts expect INTC’s revenue to increase slightly year-over-year to $13.09 billion for the quarter ending June 2024. However, the company’s EPS for the current quarter is expected to be $0.11, down 16.2% year-over-year.

For fiscal 2024, consensus revenue and EPS estimates are for $56.06 billion and $1.10, up 3.4% and 5.2%, respectively, from the previous year.

Recently, Goldman Sachs Analysts lowered their target stock price. Intel cut its stock price from $5 per share to $34 per share and reaffirmed its ‘sell’ rating as competition intensifies in the artificial intelligence landscape.

Toshiya Hari pointed to the company’s weak guidance because the recovery in traditional server demand was delayed as cloud and enterprise customers focused on AI infrastructure spending. As a result, INTC may lose market share to competitors such as NVDA. ARM Holdings plc (ARM) In the data center computing market

Moreover, Bank of America analysts lowered their price target on the stock from $44 to $40, citing rising costs, slowing growth prospects and increased competition.

Additionally, INTC’s high valuation further exacerbates market sensitivity. On a non-GAAP forward P/E basis, the stock trades at 27.58x, which is 18.9% higher than the industry average of 23.19x. Additionally, the future EV/Sales of 2.93 times is 5.7% higher than the industry average of 2.77 times. And the stock’s future EV/EBIT is 31.80x, compared to the industry average of 19.07x.

Additionally, the company’s 12-month trailing gross profit and EBIT margin are 41.49% and 1.29%, respectively, which are 14.7% and 73.1% lower than the industry averages of 48.64% and 4.80%, respectively. Likewise, its asset turnover ratio is negative 0.29x, compared to the industry average of 0.61x.

Given this backdrop, it appears prudent to watch the stock closely, although we would not recommend investing in INTC at this time.