Intel Has Lost Wall Street’s Patience as Headwinds Keep Mounting

(Bloomberg) -- After another catastrophic earnings report, Intel Corp. bulls are increasingly few and far between on Wall Street.

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Intel shares have shed nearly a third of their value since the firm gave a grim growth forecast, announced plans to slash 15,000 jobs, and suspended a dividend that has been in place since 1992. The report was the latest in a series of discouraging updates, and underlined the myriad headwinds facing the chipmaker as it struggles to execute an ambitious turnaround and compete in the artificial intelligence era.

The stock has been downgraded at multiple firms in the wake of the earnings — making it the least-liked semiconductor company among analysts.

“The report didn’t spell a bottom so much as continued reasons to be concerned,” said Peter Kenny, chief executive officer at Kenny & Co. “Investors are pulling the kill switch.”

Intel “has a lot of competition, a lack of relevant products, and the turnaround is expensive and slow. The valuation isn’t a bargain, and with increasingly heightened concerns over the state of the economy, it’s too soon to say the worst is over,” he added.

The shares lost more than a quarter of their value on Friday and are down more than 60% this year, making it the second-worst performer among members of the Philadelphia Semiconductor Index behind Wolfspeed Inc. The index itself is up 13% this year, supported by gains in companies with stronger AI exposure, including Nvidia Corp. and Taiwan Semiconductor Manufacturing Co Ltd.

Intel rose 0.8% on Wednesday, compared with a gain of more than 3% for the semiconductor index.

Intel investors have been losing patience with a turnaround plan that involves investing heavily in new chip and production technology, which it is trying to do as revenue shrinks. The company’s current products aren’t what those who are pouring money into AI infrastructure want, meaning Intel is losing market share. It’s also outsourcing the production of its best products, further squeezing profit.

Last week’s report was the third straight quarter when results were met with a sharp selloff, and Wall Street is throwing in the towel. At least six firms have downgraded the stock, giving it the lowest recommendation consensus — a proxy for the ratio of buy, hold, and sell ratings — in the sector.

Bernstein senior analyst Stacy Rasgon called Intel’s third-quarter outlook “awful,” and “a new record for the worst we’ve ever seen the company put up,” while Argus Research analyst Jim Kelleher said that “we no longer regard Intel as attractive at current levels,” even after the post-earnings slump.

Analysts are also slashing estimates, with the consensus expectation for Intel’s net 2025 earnings down more than 40% over the past week, and the consensus view for revenue down 9.6%, according to data compiled by Bloomberg. Analysts at Bloomberg Intelligence wrote that last week’s report was so grim it “will likely change the course of its fundamental trends over the next two years.”

The sharp drop in estimates has outpaced the stock’s decline, meaning that even with the selloff, shares have gotten more expensive since the report. Intel now trades near 26 times estimated earnings, well above its 10-year average, and even at a premium to the semiconductor index.

The suspension of the dividend — after slashing the payment in February 2023, and at a time when other tech companies are initiating or raising their own — also removes a key reason income-focused investors continued to hold the stock, and with revenue growth expected to be negative this year, shares may not appeal to value or growth investors either.

Intel being a value play “would depend on it having an improving future, but there are plenty of scenarios where upside doesn’t materialize and the downside continues to grow,” said Brian Colello, technology equity strategist at Morningstar.

“When you have concerns about margins and market share on top of a dividend being cut, even a drop near 30% doesn’t look like an overreaction.”

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--With assistance from Ian King and Subrat Patnaik.

(Updates to market open.)

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