Intel stock currently trades at $40 per share, about 42% below the levels of almost $68 seen on April 9, 2021, before the inflation shock hit. The Covid-19 lockdowns led to a decrease in demand for PCs and laptops, impacting Intel’s sales. Additionally, the increasing popularity of graphics processors (GPUs) poses a threat to Intel as these chips are essential for artificial intelligence-related workloads, potentially reducing the demand for Intel’s CPUs in the AI era. Despite these challenges, Intel stock has recovered by 54% from a low of $25 seen in October 2022, driven by signs of a potential pickup in the PC market. IDC predicts that global PC shipments will reach 265.4 million units in 2024, a 2% increase from the previous year.
To return to pre-inflation shock levels, Intel stock would need to gain about 72% from its current price of $40. However, estimates suggest Intel’s valuation is around $41 per share, only slightly above the market price. Intel has an opportunity in the foundry space, producing chips for third-party vendors, but faces challenges due to missteps that led to outsourcing a significant amount of wafer production, resulting in a $7 billion operating loss for its manufacturing division in 2023. Intel does not expect to break even until 2027. An analysis of Intel’s performance after the inflation shock considers trends in turbulent market conditions, comparing them to the 2008 recession.
The timeline of the inflation shock highlights key events from 2020 to the present, including a spike in inflation rates to 9% in June 2022, the highest level in 40 years. The Federal Reserve’s aggressive interest rate hikes aimed to counteract inflation resulted in market volatility, with the S&P 500 index experiencing significant fluctuations. In contrast, Intel’s stock and the broader market’s performance during the 2007/2008 crisis show a decline in Intel stock value, which recovered post-crisis, similar to the S&P 500 index.
Intel’s revenues peaked at around $79 billion in 2021, driven by increased demand during the early stages of the pandemic, but declined to $54 billion in 2023 as demand waned, particularly in the client computing group. Earnings also fell from $4.77 per share in 2019 to $0.40 in 2023 due to lower sales. With total debt increasing to $49 billion and total cash at $29 billion, Intel’s financial position appears healthy, with $15 billion in cash flows from operations in 2022. Despite this, competition in the CPU market and the growing importance of GPUs could limit Intel’s upside.
In conclusion, Intel stock could benefit from easing inflation and potential interest rate cuts by the Federal Reserve. However, strong competition in the CPU market and the prominence of GPUs present challenges for Intel’s growth. As Intel navigates these obstacles and works to capitalize on opportunities in the foundry space, investors will be watching closely to see how the company adapts to evolving market dynamics.
