Intel’s AI setback causes stock decline
Intel Slumps Over 12% Following Bleak Revenue Outlook
January 26, 2024 – 7:39 AM PST
(Reuters) – Intel (INTC.O) experienced a significant drop of more than 12% on Friday after revealing a gloomy first-quarter revenue forecast. The chipmaker is struggling to catch up in the AI race while also grappling with a weak PC market.
While AI is driving a boom in the chip sector, Intel seems to be falling behind, according to analysts. Semiconductor makers that produce chips for the high data demands of generative AI were among the top performers in the stock market in 2023.
The disappointing forecast from Intel, one of the leading suppliers of PC chips, had a negative impact on the rest of the sector. The Philadelphia SE Semiconductor Index (.SOX) experienced a 2.7% decline, marking its worst day in over three weeks.
“AI seems like it’s everywhere except at Intel,” commented Hans Mosesmann, an analyst at Rosenblatt Securities, which has a sell rating on the stock.
The lack of any noticeable AI growth strategy “points to another, yes another, transitional year,” he added.
Shares of other chipmakers, including Nvidia (NVDA.O), Advanced Micro Devices (AMD.O), Qualcomm (QCOM.O), and Micron Technology (MU.O), also saw declines ranging from 1.3% to 2.8%.
If losses hold, Intel is expected to lose approximately $26 billion in market value, based on its current share price of $43.47 in morning trade. The company’s shares had surged by 90% in 2023.
The chipmaker’s forecast for the current quarter suggests that its revenue could fall short of market estimates by over $2 billion.
“There’s a danger Intel is being left behind as chips from the likes of Nvidia and Advanced Micro Devices play an increasingly important role in the data-hungry AI industry,” warned Russ Mould, investment director at AJ Bell.
Although Intel is not yet competitive in the AI-specific chip market, its central processing units (CPUs) are often used alongside Nvidia’s AI chips, with a third of Intel’s server CPUs now being sold as part of AI systems.
Some analysts have positive views on the stock, with at least 15 brokerages raising their price targets. The median price among brokerages is $44, according to LSEG data.
“The company still stands to benefit from its AI investment in the long run. Margins appear solid, meaning that CEO Pat Gelsinger’s plan will still be implemented, albeit at a slower pace,” stated Thomas Monteiro, senior analyst at Investing.com.
According to LSEG data, Intel’s stock is trading at around 28 times its 12-month forward earnings estimates, compared to 45.08 for AMD and nearly 30 for Nvidia.
Reporting by Samrhitha Arunasalam in Bengaluru; Editing by Shailesh Kuber
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How has Intel struggled to keep up in the AI race, and how has this affected its position in the semiconductor market?
Gomerie, an analyst at Berenberg.
Intel has been facing a two-fold challenge in the market. First, it is struggling to keep up in the fiercely competitive AI race. As AI technology becomes more prevalent across various industries, the demand for high-performance chips that can handle the massive data requirements of AI applications has skyrocketed. However, Intel seems to be falling behind its competitors in this field. Semiconductor makers who have positioned themselves as leaders in the AI chip market have experienced significant growth and success in recent years, while Intel’s presence in this sector has been relatively lackluster.
Second, the chipmaker is also grappling with a weak PC market. As the proliferation of smartphones and tablets continues, the demand for traditional personal computers has been steadily declining. Intel, as one of the leading suppliers of PC chips, has felt the impact of this market shift. The disappointing revenue forecast from Intel has not only affected its own stocks but has also had a negative ripple effect on the rest of the sector. The Philadelphia SE Semiconductor Index, which tracks the performance of various semiconductor companies, experienced a decline as a result of Intel’s gloomy outlook.
Hans Mosesmann, an analyst at Rosenblatt Securities, remarked that “AI seems like it’s everywhere except at Intel.” He further expressed skepticism about the company’s AI growth strategy, stating that it points to another transitional year for Intel. This sentiment was echoed by Russ Mould, investment director at AJ Bell, who warned that Intel is in danger of being left behind as competitors like Nvidia and Advanced Micro Devices play an increasingly important role in the data-hungry AI industry.
Despite these challenges, some analysts remain positive about Intel’s long-term prospects. At least 15 brokerages have raised their price targets for the stock, indicating confidence in the company’s potential. The median price among these brokerages is $44, according to LSEG data. Additionally, Intel’s central processing units (CPUs) continue to be widely used alongside Nvidia’s AI chips. Intel’s CPUs are sold as part of AI systems, with a third of its server CPUs being utilized in this manner. This suggests that even though Intel may not be competitive in the AI-specific chip market, it still stands to benefit from the growth of the overall AI industry.
Intel’s CEO, Pat Gelsinger, has outlined a plan to address these challenges and position the company for future success. Although the implementation of this plan may proceed at a slower pace than initially anticipated, analysts believe that Intel’s solid margins and AI investments will eventually yield positive results. However, for now, the company must navigate the difficulties of the AI race and the weakening PC market, while competitors continue to thrive in these areas.
The drop in Intel’s stock price following the bleak revenue outlook reflects the concerns of investors regarding the company’s ability to overcome these challenges. If the losses continue, Intel stands to lose approximately $26 billion in market value. This underscores the urgency for the chipmaker to address its shortcomings in the AI race and find innovative ways to navigate the changing dynamics of the PC market.
Overall, Intel’s struggles in the face of the AI race and the weak PC market highlight the ever-evolving nature of the semiconductor industry. As technology continues to advance and new trends emerge, companies must adapt and innovate to remain competitive. The success of semiconductor companies in navigating these challenges will determine their position in the market and their ability to capitalize on future opportunities. For Intel, the road ahead may be challenging, but with the right strategy and execution, the chipmaker can regain its footing and thrive in the dynamic world of technology.
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