INTC Stock Outlook: Is Now the Time to Buy, Sell or Hold Intel Shares?

Intel (NASDAQ:INTC) certainly faced its fair share of headwinds in recent years. The company’s share price dropped 60% year-to-date as investors are looking past Intel stock to other semiconductor names with much better long-term growth forecasts.

There’s plenty of precedent for such a decision. AI is real, and Intel isn’t participating in this rally as it probably should.

The company recently received unexpected support from the U.S. government. Intel secured $8.5 billion in grants to bolster domestic semiconductor production. Mizuho Securities analyst Jordan Klein highlighted that the U.S. government cannot afford to let Intel struggle long term, emphasizing the importance of Intel’s success for America’s return to the chipmaking market, especially in an election year. So, there’s the geopolitical support factor that some investors are clearly banking on, and it’s paying off right now.

And then there’s the fact that Intel has intelligently been working to diversify its efforts, working to shed its “AI laggard” label and develop a new chip line. Its major focus, however, is on becoming a leading foundry, a venture requiring substantial investment. Ohio residents have witnessed the extensive construction efforts firsthand.

Intel needs a significant win to recover from its prolonged slump. Although having backing from the U.S. government, Intel’s profitability remains uncertain over the long run.

Intel Faces Multiple Hurdles

Intel shares fell over 6% Monday, extending losses after the company posted poor quarterly results and announced layoffs. Analysts doubted whether cost-cutting and AI manufacturing ramp-up would help Intel regain market share. 

Intel missed LSEG analyst estimates, posting 2 cents adjusted earnings per share versus 10 cents expected, and $12.83 billion revenue versus $12.94 billion expected. Revenue declined 1% year-over-year, with a $1.61 billion net loss due to rapid Core Ultra PC chip production for AI workloads, as stated by CEO Pat Gelsinger.

Importantly, Intel also launched a $10 billion cost reduction plan, cutting its workforce by 15% and suspending its dividend in Q4. The job cut is to streamline operations and boost competitiveness. Gelsinger stated the aim to save $10 billion by 2025, citing high costs and low margins as barriers to capitalizing on AI trends.

Following a tough quarter, Intel’s announced job cuts and a voluntary departure program are the company’s hail mary of sorts to figure out its efficiency problem. Gelsinger described the decisions as the hardest of his career. Most layoffs will occur this year, and the company will suspend its dividend to cut costs.

The stock’s decline wasn’t surprising, given the bad news. Intel faces a challenging period of reorganizing costs and increasing spending, impacting earnings. However, this strategy might yield long-term gains, especially with AI personal computers, which could grow from less than 10% to over 50% of the market by 2026.

Worst Plummet in 40 Years

Intel is overhauling its strategy to reclaim PC chip market share from Advanced Micro Devices (NASDAQ:AMD) and boost its global manufacturing presence. The Data Center and AI segment generated $3.05 billion this quarter, falling short of the $3.07 billion forecast. Although there is high demand for AI processing chips, Intel’s models still lags behind its peers, of which most of the market prefer Nvidia (NASDAQ:NVDA).

Intel’s biggest segment is its Client segment, which reported over $7.4 billion in revenue for Q2. Despite this remarkable number, it is still below the $7.5 billion forecast by analysts. On the other hand, Qualcomm’s (NASDAQ:QCOM) Snapdragon X Elite PC chip now poses a challenge for Intel in the PC sector.

Qualcomm’s new chip outperforms Intel and AMD rivals in power and battery life, challenging Apple’s (NASDAQ:AAPL) M-series. Intel plans to launch its own processor later this fall and aims to build its foundry business to compete with Taiwan Semiconductor (NYSE:TSM). Currently, Intel mainly serves itself, though it has potential clients like Microsoft (NASDAQ:MSFT), requiring time to gain market traction.

Analysts Say ‘Hold’ and ‘Sell’

As Intel shifts wafer production to newer processes, cost pressures on margins should ease. The company expects its foundry business to break even by 2027. 

Goldman Sachs believes $10 billion in reductions, including a 15% workforce cut, might not ensure a sustained recovery. Therefore, the firm maintain a “sell” rating and lowering their price target to $22. Baird analysts, citing ongoing cost challenges, rated Intel “neutral” and cut their price target to $20 from $40.

Argus’ Jim Kelleher downgraded Intel from a “buy” to a “hold,” just after the company missed second-quarter earnings expectations. Kelleher cited concerns about Intel’s significant losses in U.S. manufacturing expansion and mounting pressures in the data center segment. He predicted Intel would face low or no-profit quarters in the coming years.

While Intel’s latest moves are necessary for future growth, they come with significant risk. The stock might stagnate or fall further with any new setbacks. Despite this, holding shares could pay off long-term if Intel achieves its goals. Aggressive investors might consider buying now and holding for at least five years to potentially benefit from Intel’s recovery.

On the date of publication, Chris MacDonald did not hold (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.

On the date of publication, the responsible editor held a LONG position in AAPL and NVDA.