Shares in Intel (NASDAQ: INTC) tumbled 30% over the last three months. The company has faced a series of challenges, including the aftermath of poor market conditions, heavy investment in a new venture, and losing market share in central processing units (CPUs).
But recent earnings and a shift in its business model could represent a turning point for the chipmaker. After years of losing out to rivals Advanced Micro Devices and Nvidia, Intel is restructuring its business to focus on manufacturing and the budding artificial intelligence (AI) sector.
As a result, a recent stock dip could be the perfect time to make a long-term investment in Intel’s future and potentially profit from its comeback.
Moreover, Intel has the lowest forward price-to-earnings ratio among the world’s three most prominent chipmakers. The figures indicate that Intel could be the best-valued stock among these companies and a low-risk way to invest in the chip market, just as demand for chips is soaring.
Here’s why a stock plunge could be the best time to invest in Intel.
It’s setting itself apart from competitors by moving into manufacturing
In June 2023, Intel announced a “fundamental shift” in its business model, transitioning to an internal foundry system that could see it become the biggest semiconductor manufacturer in North America and Europe. The company believes the change will save it between $8 billion and $10 billion by 2025 and achieve adjusted margins of 60%.
Intel’s shift in its business model could significantly pay off over the long term. Data from Allied Market Research shows the semiconductor market reached $107 billion in 2022 and is projected to more than double by 2032, hitting $231 billion.
The biggest hurdle with moving into manufacturing is the hefty investment required. This is why most tech businesses rely on companies like Taiwan Semiconductor Manufacturing for their chips rather than moving into production themselves.
However, Intel won’t be completely alone in footing the bill. The company is one of the biggest beneficiaries of President Joe Biden’s CHIPS Act, an initiative to expand U.S. semiconductor manufacturing capacity. Intel is due to receive $8.5 billion to help it build at least four foundries across the U.S.
Moreover, Intel’s shift to a foundry model could boost its position in the lucrative AI industry. In May, CEO Pat Gelsinger said he expects the company’s upcoming Ohio plant to become “the AI systems fab for the nation,” with Microsoft already signed up as a customer.
Intel has fallen slightly behind Nvidia and AMD in AI. But its role in manufacturing could see it become a crucial part of the industry and profit from the tailwinds of AI for years.
Intel is moving in the right direction financially
Intel posted its first-quarter earnings on April 25. Revenue rose 9% year over year to $13 billion but missed expectations by $80 million. The miss has caused Intel’s share price to tumble. Yet there were plenty of positive takeaways from the quarter that suggest the company is moving in a promising direction.
Revenue in Intel’s data center and AI segment rose just slightly at 4% year over year to $3 billion. However, operating income for the segment skyrocketed to $184 million after a loss of $69 million the previous year. The improvement comes after the company launched a new line of AI chips to compete with Nvidia’s market-leading offerings and other expansions in the market.
Intel’s total operating income is still negative. But the first quarter did see an improvement of about 27%, indicating the company is moving toward profitability. This is supported by the company’s free cash flow, which has increased by $2 billion since January.
It’ll take time, but Intel is on a promising growth trajectory. As potentially the best-valued chip stock, the company is worth considering right now for a long-term hold.
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Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
Intel Stock Just Plunged. Is Now the Time to Invest? was originally published by The Motley Fool
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