Intel (NASDAQ:INTC) seemed like it was entering rebound mode, but the latest Intel stock rally petered out. If that’s not bad enough, this pullback may not be temporary. As key concerns about the company come off the back burner, shares may be at risk of experiencing a continued slide in price in the near-term, possibly for even longer.
Concerns about Intel’s AI growth prospects and their bet on chip foundry payoff. Taking these and other concerns into account, shares could slip down to multiyear lows. Read on, as we explain why INTC continues to earn a “D” rating in Portfolio Grader.
Intel Stock, the Recent Rally and Subsequent Sell-Off
At the start of July, what was helping to drive INTC back to higher prices? For one, the market’s cycling into the so-called “AI catch-up” trade with Intel. At the time, analysts at Melius Research and elsewhere were laying out a bullish argument about this and other “laggard” chip stocks.
In a nutshell, their take was that Intel stock and other names were poised to rally during the second half 2024, as the market once again became appreciative of their respective AI growth catalyst. However, while a major factor driving the rally, something else may have played a role as well.
As we discussed previously, analysts at Mizuho at the time were arguing that Intel’s early July rally was driven mostly by short-covering, and was not sustainable. This downbeat take has been proven correct, even as some recent news sounds bullish for Intel.
We’re talking about former President and 2024 Republican nominee Donald Trump’s recent statements about America’s future role in the China-Taiwan conflict. These comments heightened geopolitical concerns about “fabless” chip companies, but in theory sounds promising for Intel’s big foundry wager.
Why a Downward Spiral May Continue
Although the prospect of a more vulnerable Taiwan would in theory be a positive for Intel’s foundry plans, it makes sense that news has had zero impact on Intel stock.
Yes, thanks to $20 billion in loans and grants from the U.S. Federal Government, Intel has the financing in place to build out its stateside chipmaking capacity.
However, one of Intel’s largest U.S. foundry projects, in Ohio, is over two years from completion. Economic headwinds have resulted in delays to Intel’s European foundry build out.
Until then, count on the foundry business continuing to be unprofitable, only perhaps reaching break-even margins by decade’s end.
With this, an earnings recovery for Intel is going to really depend on the company’s AI chip rollout. However, who’s to say that Intel’s AI data center and AI-PC chips will beat, or even meet, sales expectations? Intel is a latecomer to the AI data center chip market.
In AI-PC chips, it’s possible that a dark horse contender pushes Intel to the back of the pack. With all of this in mind, it makes sense that the market has, and could continue to, sour on INTC.
The Verdict: Stay Away, as Downside Could be Greater Than it Seems
With the hope and hype waning, investors are clearly looking at the facts again with Intel. That’s bad news for the stock’s future performance. As the market further walks back its future expectations for the company, downside risk could be greater than it seems today.
In other words, don’t count on $30 per share continuing to serve as a floor for this stock. Remember, even at today’s prices, the market is pricing-in forecast 2025 as if it’s a near-certainty. Shares today trade for 17 times estimated 2025 earnings.
That may sound reasonable, but what happens if earnings per share forecasts are revised downward?
A revision from the current consensus of $1.92 per share down to, say, $1.50 per share, could lead to shares falling in line with these changes. That would be a 28% drop. Downside could be even greater than that, given that the low end of forecasts call for EPS of just $1.20 per share in 2025.
Hence, the verdict with Intel stock remains clear. Cut your losses pronto, and avoid it at all costs.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
On the date of publication, the responsible editor did not have (either directly or indirectly) and positions in the securities mentioned in this article.