Intel (NASDAQ:INTC) stock has had a difficult time at the stock market since 2018. It is largely because of the lack of innovation and the loss of market share to its peers in the CPU and GPU business.
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Intel is in the midst of an ambitious turnaround plan which could bear fruit over the long term. However, the risks outweigh the rewards in investing in INTC stock at this time.
The stock is trading is cheap, though, compared with industry stalwarts such as Nvidia (NASDAQ:NVDA) and AMD (NASDAQ:AMD). It trades at 12 times forward sales, but the main reason for its cheap multiple is that Intel expects a significant drop in earnings in 2022.
Current estimates forecast a 7.4% drop in earnings in 2022 from $4.79 in 2021. Moreover, earnings are expected to fall by 9.7% in 2021 from $5.30 in 2020. Therefore, the beaten-down position of INTC stock is justified and should deter investors from placing their bets on the stock.
Intel’s Turn-Around Plan
Intel has generated lackluster growth in the past few years, suffering from postponed chip upgrades and chip shortages. As a consequence, it has ceded market share to TSMC (NYSE:TSM). Moreover, it has also lost a lot of its market share to AMD in the PC and data center CPU markets.
Intel is a major player in foundries, which could potentially become a highly profitable business model. Gelsinger is hopeful that Intel could catch up to TSMC in the foundries space by the conclusion of 2024.
Gelsinger has outlined his plans to upgrade Intel’s plants to use ASML’s lithography machines, expanding the company’s third-party foundry services. The goal is to chomp away at TSMC’s market share, eliminate industry bottlenecks in Asia, and attract massive government subsidies from U.S. and Europe.
Furthermore, Intel plans to expand its footprint in the U.S. to effectively shield itself from future trade wars and Taiwan-related geopolitical risks. If it can successfully achieve all these goals, it will likely grow at an impressive pace over the next decade, making it an attractive long-term investment again.
The main risk for Intel is its execution. It’s a company with a sizeable market share across its key segments and massive cash flows but has executed poorly in introducing new process types.
However, with a tech-focused CEO at the top, it appears likely that Intel could potentially bring products to the market in a more efficient manner. Nevertheless, execution remains a core risk for the company in the future.
Furthermore, catching up to TSMC is a tough ask at this stage. TSMC plans to invest up to $100 million in its business over the next three years and is far ahead of Intel in the process race and will likely remain the core risk as we advance. TSMC also has secured government subsidies in the U.S. for its Arizona plants, a move which Gelsinger has fiercely criticized.
Intel’s new CEO has lofty goals for the company’s future but clearly has his work cut out. Intel is a business suffering from serious execution issues and is chasing an industry leader roaring ahead.
Bottom Line on INTC Stock
INTC stock has moved sluggishly in the past few years, and the trend is unlikely to change anytime soon. Intel has a turnaround plan in place which could pay dividends down the road, but it’s too risky at this stage.
Its new CEO has set ambitious targets for the company, but execution remains a major concern. Therefore, it’s best to avoid INTC stock at this time.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.