Intel's Share Price Remains at a Decade-Low Level. Should Investors Consider Purchasing?
Intel's (INTC 3.48%) performance from 2010 to 2020 was decent, but its shares haven't been a great investment over the last five years. The stock experienced a recovery in 2023 before taking a massive 54% dive in 2024, reaching its lowest price level since 2013.
When a blue-chip stock like Intel, a component of the Dow Jones Industrial Average, hits multiyear lows, some might view it as a "bargain" and buy in anticipation of a significant rebound. However, Intel may only appear inexpensive in terms of price, not in terms of its financial health or growth potential.
In fact, based on market position losses and 2025 earnings estimates, Intel seems to be fairly valued and may continue to disappoint investors.
Intel is losing ground to its top CPU competitor
The explosion of the data center and server chip market, fueled by companies upgrading to handle artificial intelligence (AI) workloads, presents a significant opportunity. Statista projects the AI server market to surge tenfold to $430 billion by 2033.
Intel should, therefore, exhibit faster growth, particularly in its data center and AI revenue. However, Intel's data center and AI revenue grew only 9% year-over-year in Q3, while competitor Advanced Micro Devices (AMD) reported a staggering 122% year-over-year increase in its data center segment, largely thanks to AMD Epyc CPU sales. AMD claimed to have gained market share in Q3 in the server CPU market, a claim backed up by its relative growth compared to Intel.
AMD also leads Intel in the PC market. Intel reported a 7% year-over-year decrease in revenue from its client computing group, while AMD's client segment saw a 29% year-over-year increase, driven by strong demand for Zen 5 Ryzen processors.
Although Intel remains the leading CPU supplier with a 62% share of the x86 CPU market in Q3, according to Statista, it seems Intel won't halt its share losses to AMD anytime soon. AMD's Ryzen and Epyc server CPUs outperform Intel in Passmark Software's benchmarks, which Intel requires to regain the top spot in industry-leading chip performance.
The stock isn't as cheap as it seems
The investment argument falters when investors examine Wall Street's earnings estimates and consider Intel's valuation. Analysts predict Intel will enhance its profitability in 2025 with new product launches, reporting earnings per share of $1. However, the stock still trades at a price-to-earnings ratio of approximately 23 on these estimates, slightly above the S&P 500 average.
Even with a long-term growth perspective, analysts anticipate Intel's earnings to expand by an annualized 5% going forward. This is in line with previous estimates prior to the stock's decline.
Intel may have the opportunity to surpass Wall Street's expectations with the increasing availability of AI-enabled PCs. Intel has new Core Ultra processors and upcoming Panther Lake chips designed to excel in AI PCs, potentially positioning it for a resurgence in the consumer market.
Despite this, AMD is also working on a pipeline of new chips to capitalize on the same opportunities. At this juncture, given the persisting share losses, investors should hold off on purchasing Intel stock. Until the company curbs its market share losses with new products, Intel won't meet shareholders' expectations for satisfying returns at these lower share prices.
Even with Intel's potential growth in the AI market, its data center and AI revenue lag behind its competitor AMD, which reported a significant increase in its data center segment. This trend suggests that Intel's stock might not be as undervalued as some investors perceive, given the company's struggle to regain market share.
Analyzing the financial aspect, Intel's stock still trades at a price-to-earnings ratio slightly above the S&P 500 average, despite Wall Street's predictions of enhanced profitability in 2025. This indicates that the stock might not be as cheap as it appears, further backing up the idea of investors being cautious with their purchase decisions.
