computer chip company Intel Corporation (INTC -0.66%) This is a difficult stock to grasp. Most people know Intel as the processors found in personal computers, but Intel has long dominated data centers. Management is investing billions of dollars and transforming the company to make it a top-tier semiconductor maker. taiwan semiconductor.
The company recently ended the year with its fourth-quarter earnings report, and Wall Street wasn't happy with what it said. Intel's stock price took a hit on the chin and its earnings plummeted. Investors now need to decide whether this is a buying opportunity or a sinking ship to avoid.
We don't want to leave out a big technology company like Intel, so we took a look at how the company fared in the fourth quarter to determine the smart move for investors today.
Intel's manufacturing ambitions are a big gamble
There's a fine line between betting with confidence and being reckless. Intel invented the programmable microprocessor and the x86 architecture, which became the primary design for central processing units and servers.It's like a technology version of coca cola, a great product that created an empire. Although Intel dominated for decades, competition steadily chipped away at Intel's market share, especially in data centers.
After current CEO Patrick Gelsinger took over in 2021, the company embarked on an ambitious investment plan to become a major semiconductor manufacturer known as an industry fab. Most chip companies design the chips but outsource manufacturing to factories, the largest of which is Taiwan Semiconductor.
Intel has projects underway to build facilities in several U.S. states. The company is poised to receive support from the U.S. government through the Chips Act of 2022, but the company is still spending tens of billions of dollars. It has borrowed heavily to fund these plans.
INTC Capital Expenditure (TTM) Data by YCharts
Intel has increased its long-term debt by about 50% in a short period of time and is levered to over 4x EBITDA, which is alarming and I'd like to see a level of around 2.5. ing. The company's fab businesses need to be successful from the get-go, or investors could be left with a financially troubled business.
Foundry's revenue doubled in 2023 to $952 million, a small portion of Intel's total of $54 billion. No one will know how successful Intel's fab business is until its various projects are up and running. That will be several years from now.
Should investors worry about AI?
Artificial intelligence (AI) has been a big boost for several companies, and it should be for Intel as well. The company is bringing new chips to market targeted at AI applications. This includes the upcoming Gaudi3, an AI chip for generative AI like ChatGPT. This strategy means competing directly with: Nvidiacurrently dominates that market with its H100 chip.
While Nvidia enjoys a surge in demand for AI chips, Intel's data center and AI businesses are shrinking significantly.
| business unit | Q4 2023 | Comparison with Q4 2022 | 2023 | Comparison with 2022 |
|---|---|---|---|---|
| client computing group | $8.8 billion | 33% | $29.3 billion | (8%) |
| Data center and AI | 4 billion dollars | (Ten%) | $15.5 billion | (20%) |
| network and edge | 1.5 billion dollars | (twenty four%) | $5.8 billion | (31%) |
| mobile eye | 0.637 billion dollars | 13% | $2.1 billion | 11% |
| casting services | 0.291 billion dollars | 63% | 952 million dollars | 103% |
Graph by author. Data Source: Intel Corporation's Q4 2023 Earnings.
While this is just a snapshot, Nvidia's rapid breakthrough in AI is definitely creating an uphill battle for Intel and other competitors.
Is Intel stock a buy?
Wall Street was unimpressed with Intel's prospects. The first quarter revenue outlook is between $12.2 billion and $13.2 billion, an increase of 13% year-on-year if Intel reaches the high end. However, it clears a low hurdle as it compares with revenue for the first quarter of 2023, which is 36% lower than the first quarter of 2022. As the company continues to invest in its fab business, first-quarter earnings per share could be as low as $0.13.
Investors can see below how the market started pricing more risk into stocks throughout 2022, but then the stock rebounded along with the broader market. To buy the stock now, you need comfort from Intel's rising debt and current uncertainty in the AI space. You also have to believe that the company's fab business will come online and be a huge success in the coming years.
INTC data by YCharts
There's no reason Inter can't beat it, but there are many potential outcomes. That makes it a difficult task to predict how much Intel will grow its business in the next few years. It may take some time to accurately determine revenue growth potential, as there are significant variables within Intel that make it difficult to rely on growth forecasts that can change from quarter to quarter.
Investing is about using facts to find your best chance of success. Intel is currently close to the roll of the dice, making it a stock to avoid until it becomes clear how competitive the company will be in the future.
Justin Pope has no position in any stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: Long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short February 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
