Once the undisputed king in the semiconductor industry, Intel (NASDAQ:INTC) stock has faced significant challenges in recent years. While the company remains a major player, its dominance has eroded due to fierce competition and internal missteps.
In 2024, several factors suggest that investors should exercise caution before rushing to buy Intel stock. The company’s ambitious plans, while promising, are riddled with obstacles that could hinder its progress in the coming years. While Intel has a loyal customer base and strong brand recognition, it faces an uphill battle in several areas that make it a risky investment.
Foundry Division’s Continued Unprofitability
One of Intel’s most ambitious endeavors in recent years is the expansion of its foundry division. For those that do not know, foundry services in the semiconductor industry manufacture chips for other companies.
While this move has the potential to diversify its revenue streams, it has not paid off yet and likely won’t for several years. This move has proven to be a costly and challenging undertaking.
In 2023, the company’s foundry division posted an astonishing $7 billion operating loss. Intel faces stiff competition from established foundry leaders like Taiwan Semiconductor Manufacturing (NYSE:TSM) and Samsung. However, the news that I will share below might be the final nail in the coffin.
Taiwan Semiconductor announced this month that they will no longer need ASML Holdings‘ (NASDAQ:ASML) most advanced EUV lithography machines to produce next generation semiconductor chips. This is bad news for Intel, as TSMC ramps up production for AI chips in 2024. This will allow TSMC to save on costs, further streamlining operations efficiencies and time to market.
Lagging Behind in the AI Chip Market
Artificial intelligence (AI) is rapidly transforming the tech industry, and specialized AI chips are in high demand. Unfortunately, Intel has fallen behind in the crucial market, ceding growth to competitors like Nvidia.
While Intel has made some strides in developing AI chips, its offerings have not yet penetrated the market. Its Gaudi 3 touts superior performance when running AI and large language models (LLM) compared to Nvidia’s (NASDAQ:NVDA) H100 chips. However, the chips won’t hit the market until the third quarter of 2024.
Meanwhile, Nvidia just reported groundbreaking earnings and H200 shipments are forecasted for the second quarter of 2024. This lag in the AI race will have significant consequences for Intel’s near- and long-term growth prospects.
Mounting Debt to Fund Growth Ambitions
Intel’s ambitious plans for expansion, including its foundry division and efforts to catch up in the AI chip market, requires significant financial resources. To fund these initiatives, the company has taken on substantial debt.
This raises concerns about their financial stability, and the company has a lot of catching up to do. Moreover, their negative cash flows and mounting debt could become a burden if their AI growth plans don’t materialize as expected.
Their foundry ambitions seem quite delusional and continuing to leverage debt to play catch up might hurt the company even more in the long term.
Intel Stock: Challenges to Persist in 2024
Intel stock remains a significant player in the semiconductor industry. However, its current challenges and uncertainties warrant a cautious approach from investors.
The company’s foundry division will most likely lose money for the next several years, and they are well behind in the AI chip race. Their strategy to leverage debt for growth seems extremely risky, and some of their bets might now materialize as they hope.
On the date of publication, Terel Miles 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.