Popular semiconductor company Intel Corporation (INTC) is facing a challenging period marked by declining financial performance and a struggle to maintain competitiveness in the semiconductor industry. As a result, INTC’s market position and profitability are at risk.

Thus, I think the stock is best avoided now. In this article, I’ll examine key factors contributing to INTC’s current situation.

The complex and global nature of the semiconductor supply chain leaves chip companies vulnerable to disruptions caused by natural disasters, trade conflicts, or geopolitical tensions. These disruptions can lead to supply shortages, production delays, and increased costs, which might hinder INTC’s ability to meet customer demands.

INTC’s revenue and EBITDA have declined at CAGRs of 9.4% and 68.8% over the past three years.

Moreover, shares of INTC have tumbled 33.3% over the past year and 13.1% over the past nine months to close the last trading session at $29.

Here is what could shape INTC’s performance in the near term:

Disappointing Financials

During the fiscal 2023 first quarter that ended April 1, 2023, INTC’s net revenue declined 36.2% year-over-year to $11.72 billion. Its gross margin decreased 56.6% from the previous-year quarter to $4 billion.

Its operating expenses rose 11.7% year-over-year to $5.48 billion. Its operating loss amounted to $1.47 billion, compared to an operating income of $4.34 billion in the previous year’s quarter.

The company’s non-GAAP net loss attributable to INTC stood at $169 million, compared to a non-GAAP net income attributable to INTC of $3.58 billion in the previous-year quarter. Similarly, non-GAAP net loss per share attributable to INTC came in at $0.04 for the quarter, compared to a net income per share attributable to INTC of $0.87 in the year-ago quarter.

INTC’s recent fiscal first-quarter financial report paints a worrisome picture as the company faced a decline in revenue across almost all of its business segments. The company’s Data Center and AI segment experienced a significant 39% decline compared to the previous year’s quarter, generating only $3.70 billion in revenue.

The company’s Client Computing segment also saw a substantial decrease of 38% year-over-year, with sales totaling $5.80 billion. Additionally, Network and Edge segment experienced a 30% decline year-over-year to $1.50 billion. Even the Intel Foundry Services segment reported a 24% decline from the previous-year quarter, generating a mere $118 million.

Desperate Bid to Compete

INTCs recent announcement about its upcoming chip for artificial intelligence (AI) computing in 2025 is seen as a desperate attempt to compete with industry leaders NVIDIA Corporation (NVDA) and Advanced Micro Devices, Inc. (AMD).

While INTC claims its Ponte Vecchio chip outperforms NVDA’s latest AI chip- the H100- its delay and subsequent reworking have put INTC at a significant disadvantage. By the time INTC’s Falcon Shores hits the market in 2025, NVDA is expected to have already released other competitive chips, further solidifying its position as the market leader.

Poor Profitability

INTC’s trailing-12-month gross profit margin of 38.34% is 22.1% lower than the industry average of 49.24%. Its trailing-12-month asset turnover ratio of 0.31x is 48.6% lower than the 0.61x industry average.

In addition, INTC’ trailing-12-month negative ROCE, ROTC, and ROTA of 2.84%, 0.94%, and 1.54% are lower than the industry averages of 0.63%, 2.14%, and 0.21%.

Weak Next-Quarter Guidance

For the second quarter of 2023, INTC anticipates revenue in the range of $11.5-$12.5 billion, which is a decline of 22% year-over-year. The company expects a loss per share of $0.04, a massive decline of 114% year-over-year.

Premium Valuation

In terms of forward non-GAAP P/E, INTC is currently trading at 69.78x, which is 225.6% higher than the industry average of 21.43x. Its forward non-GAAP PEG multiple of 21.38 is significantly higher than the industry average of 1.73. Moreover, its forward EV/EBIT multiple of 84.53 is 380.1% higher than the industry average of 17.61.

POWR Ratings Reflect Weakness

INTC has an overall D rating, which equates to a Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. INTC has an F grade for Growth, in sync with its poor financial performance in the recent fiscal quarter.

Moreover, the stock has a grade D for Stability, consistent with its 24-month beta of 1.01.

The stock is ranked #74 among 91 stocks in the Semiconductor & Wireless Chip industry.

One can access additional INTC ratings for Value, Momentum, Quality, and Sentiment here.

Bottom Line

The stock is currently trading below its 50-day and 200-day moving averages of $30.41 and $29.13, indicating a downtrend.

Moreover, INTC’s failure to deliver on its Ponte Vecchio chip, which was meant to rival NVDA is suffering from years of delays, leaving INTC with virtually no market share in the current AI chip market.

Additionally, INTC’s declining figures in the recent quarter raise undeniable red flags, and its poor next-quarter projections indicate challenges and potential struggles in various areas of its business.

As a result, it might be best for investors to avoid the stock now.

Stocks to Consider Instead of Intel Corporation (INTC)

The odds of INTC outperforming in the weeks and months ahead are significantly compromised. However, there are many industry peers with impressive POWR Ratings. So, consider this A-rated (Strong Buy) stock from the Semiconductor & Wireless Chip industry instead:

Infineon Technologies AG ADR (IFNNY)

Renesas Electronics Corporation (RNECF)

SUMCO Corporation (SUOPY)

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INTC shares were unchanged in premarket trading Monday. Year-to-date, INTC has gained 11.52%, versus a 10.25% rise in the benchmark S&P 500 index during the same period.

About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More...

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