Current:Home > InvestIntel stock just got crushed. Could it go even lower?-InfoLens
Intel stock just got crushed. Could it go even lower?
View Date:2024-12-23 14:18:48
If there were a trifecta for terrible earnings reports, Intel(NASDAQ: INTC) would have just won it.
The blue chip tech stock missed estimates in its second-quarter earnings report, offered guidance below expectations, eliminated its dividend, and announced a round of layoffs and cost cuts.
Any of those news items on its own would have been enough to send the stock spiraling, but all four at once show a company in utter disarray, one that can't meet its own forecasts, maintain cash flow to return to investors, or allocate internal resources effectively.
Not surprisingly, Intel stock plunged on the news, closing down 26% on Friday. Shares are now at their lowest point in over a decade.
There were already red flags visible in Intel's business as the company had slashed its dividend previously, missed guidance, and seemed to be behind in the AI race. However, the second-quarter update makes it clear that the company is fundamentally broken. Dip-buyers may be thinking of buying the stock, but Intel could easily move even lower, and a number of events could spur just that.
Investing:After dark days for stocks, see where stock market and economy stand
1. 2030 guidance should get pulled
CEO Pat Gelsinger has staked the company's future on Intel Foundry, the company's chip manufacturing business, and artificial intelligence through new products like its Gaudi 3 accelerator.
Earlier this year, when the company restructured to break out Intel Foundry as its own operating segment, Intel gave long-term guidance indicating a path to bumper profits. Intel said losses would peak in the foundry business this year, achieve break-even operating margins by 2027, and reach 30% adjusted operating margins by 2030. It also said it was targeting a 40% adjusted operating margin in its products business by 2030.
At the time, those seemed like distant and lofty goals, but now they seem like little more than pie in the sky. In its second-quarter report, Intel badly missed its own gross margin guidance of 40.2%, posting a result of 35.4%. The company blamed the miss on an accelerated ramp in its AI PC product, higher-than-expected charges to non-core business, and headwinds from unused capacity.
Companies do miss guidance, but missing by five percentage points is significant. It indicates both management's inability to forecast the business and the volatility inherent in a high-tech, cyclical industry.
Intel can't control competitive behavior, customer demand, new technologies, the business cycle, or regulations like recent U.S. chip export restrictions to China. It's foolish to think the company can plot a steady path to margin improvement over the next six years and get there as expected. After Thursday's news, that guidance seems likely to be pulled at some point, and that's likely to push the stock lower. It's only a question of when.
2. Removal from the Dow could be around the corner
Intel has been hanging on to its membership card in the Dow Jones Industrial Average(DJINDICES: ^DJI), but its position in the elite blue chip index made up of just 30 stocks seems increasingly hard to justify.
Intel trades at a price just north of $20 a share, meaning its impact on the price-weighted index is almost nothing. The next-lowest price on the Dow is Verizon at $41 a share.
Among the Dow's criteria for inclusion on the index are the company's reputation, history of sustained growth, interest to investors, and sector representation of the broader market. With chip stocks in vogue right now, the Dow can find much better and more successful representations of the industry than Intel. Nvidia and Broadcom have both split their stocks recently, making them eligible for Dow membership, and even swapping Intel for AMD would make sense.
Leaving the Dow wouldn't affect Intel's business, but it would further damage its reputation with investors and serve as yet another reminder of the company's long fall from grace.
3. Recruiting just got even harder
Imagine working in Silicon Valley for the last 20 years and holding company stock that returned nothing in those 20 years. Intel engineers don't have to imagine it. They lived it.
Morale is likely at an all-time low at the company right now. On top of laying off 15% of its workforce, Intel is spinning its wheels at a time when chip stocks have added trillions of dollars in value as they ride the AI boom. Just across town in Santa Clara, Nvidia employees are swimming through a data center of gold coins, but Intel can't keep up with the Joneses.
It's a harsh reality inside Intel at the moment, and it could lead to an exodus of employees and make recruiting that much more difficult. Ultimately, a company like Intel is only as strong as the people doing the work, and recruiting top talent is necessary for it to thrive.
That just got significantly harder after Thursday's layoffs, the cost cuts, and the plunge in the stock.
Can Intel recover?
It's possible that the company will one day land on its feet, but Intel stock deserves to be in the penalty box after such a long period of underperformance. The sell-off could attract bargain hunters, but it's likely to take years for management to fundamentally turn around the business.
For now, investors are better off doing something that's been a winning approach for the last decade -- looking elsewhere in the chip sector.
Jeremy Bowman has positions in Broadcom. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Broadcom, Intel, and Verizon Communications and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a disclosure policy.
The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.
Should you invest $1,000 in Intel right now?
Offer from the Motley Fool: Before you buy stock in Intel, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Intel wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $638,800!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
See the 10 stocks »
*Stock Advisor returns as of August 6, 2024
veryGood! (2)
Related
- Megan Fox Is Pregnant, Expecting Baby With Machine Gun Kelly
- The 10 Best Body Acne Treatments for Under $30, According to Reviewers
- You can now ask Google to take your personal data out of its search results
- See Liam Payne and Louis Tomlinson's Beautiful One Direction Reunion
- Veterans face challenges starting small businesses but there are plenty of resources to help
- The price of free stock trading
- Zelenskyy sees opportunity in China's offer to mediate with Russia, but stresses territorial integrity
- Facebook shrugs off fears it's losing users
- Shawn Mendes quest for self-discovery is a quiet triumph: Best songs on 'Shawn' album
- She joined DHS to fight disinformation. She says she was halted by... disinformation
Ranking
- Katharine Hayhoe’s Post-Election Advice: Fight Fear, Embrace Hope and Work Together
- Proof TikToker Alix Earle Is on Her Way to Becoming the Next Big Star
- Jennifer Lopez Just Launched a Dazzling Exclusive Shoe Collection With Revolve
- The U.S. warns companies to stay on guard for possible Russian cyberattacks
- US Open finalist Taylor Fritz talks League of Legends, why he hated tennis and how he copied Sampras
- The 'Orbeez Challenge' is causing harm in parts of Georgia and Florida, police warn
- American teaching in Sudan was told he was on his own amid violence, mom says: Sick to my stomach
- 14 Stores With the Best Sale Sections
Recommendation
-
USMNT Concacaf Nations League quarterfinal Leg 1 vs. Jamaica: Live stream and TV, rosters
-
Coast Guard suspends search for Royal Caribbean cruise ship passenger who went overboard
-
The FBoy Island Universe Is Expanding With FGirl Island Spinoff and a New Home
-
Proof TikToker Alix Earle Is on Her Way to Becoming the Next Big Star
-
Subway rider who helped restrain man in NYC chokehold death says he wanted ex-Marine to ‘let go’
-
Why Twitter is an easy target for outsiders like Elon Musk intent on change
-
Tobacco giant admits to selling products to North Korea, agrees to pay more than $600 million
-
King Charles' sister Princess Anne says streamlining the royal family doesn't sound like a good idea