Amid intense competition in the semiconductor industry, Intel Corporation INTC fell short of expectations and lagged its peers. However, with Lip-Bu Tan being appointed as its new CEO, can Intel be the year’s top turnaround stock, and an enticing buy? Can its shares scale upward consistently after falling to levels touched in 1997? Let’s explore –
For some time, Intel’s manufacturing business has been struggling, and the company remains a minor player in the artificial intelligence (AI) semiconductor market. Intel’s shares haven’t fared well over the past year, falling 47.8%, as its previous CEO, Pat Glesinger, failed to boost the company’s product lineup.
However, Lip-Bu Tan’s appointment as the CEO of Intel, effective March 18, has been well-received by Wall Street. Intel’s shares gained more than 10% in the extended trading session, following the appointment as investors remained optimistic about Tan’s capability to restore stability at Intel and return the company to its past glory as a chip leader.
This is because Lip-Bu Tan’s stint in the semiconductor industry has been fruitful. When he played the role of the CEO of Cadence Design Systems from 2008 to 2021, he helped the company increase its operating margins, doubled its revenues, and boosted the stock price by almost 2,700%.
Moreover, Tan is not new to Intel’s proceedings since he served its board before stepping down in August. Tan plans to make the company engineering-focused and spin-off assets that are not part of the company’s core mission.
Tan intends to deliver a competitive AI platform following the failure of Intel’s Falcon Shores AI accelerator. Intel is developing Jaguar Shores, a next-generation AI accelerator for the data center market to stay competitive in the AI race.
Tan also aims to streamline operations through cost-cutting measures, enhance the balance sheet, and align manufacturing processes with customers’ needs.
A lot is happening with Intel that may strengthen its foundry business. Taiwan Semiconductor Manufacturing Company Limited TSM, or TSMC, may buy some stake in Intel’s foundry business. The increasing demand for AI chips is driving growth in the foundry business and TSMC’s chip fabrication leadership. Thus, the new deal could benefit Intel in the long run.
By the second half of 2025, Intel intends to launch the Panther Lake central processing unit (CPU), which uses the 18A process node. The 18A has also been made available to external customers such as Amazon.com, Inc. AMZN and Microsoft Corporation MSFT, a tactical move to boost the foundry business. Intel, anyhow, continues to be a dominant player in the PC CPU market.
With Lip-Bu Tan taking over the helm of affairs and Intel’s foundry business set to recover by banking on new deals and planned moves, it makes sense to hold onto the INTC stock.
The likelihood of a revival in Intel’s business is not far-fetched, and brokers are also hopeful about the company’s growth potential as they raise INTC’s average short-term price target by nearly 9% to $24.44 from the previous $22.43. The highest target is set at $62, an upside of 176.4%.
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However, the company is not out of the woods. In fiscal 2024, Intel posted a net income loss of $18.8 billion in contrast to the net income profit of $1.7 billion in fiscal 2023. The company’s net profit margin remains negative at 35.3%, whereas the Semiconductor – General industries are 48.6%, indicating that its expenses exceed revenues, leading to financial instability.
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President Trump’s tariffs, which prompted China to retaliate with tariffs have also irked Intel. This is because Intel has substantial revenue exposure to China, making Tan’s role in turning around the company even more challenging. Thus, new entrants, for now, should avoid betting on INTC stock until the company’s financials improve and tariff issues get resolved.
Intel has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).
