Recent revenue and earnings numbers (and a revised short-term outlook) have caused investors to sour on Intel’s stock right now. However, the firm is making a solid pivot toward a major AI opportunity. It’s diversifying its operations and making serious strategic investments to enhance the company’s technical expertise and production capabilities over the long run.
If you’re patient, the recent share price drop offers a relatively cheap entry point to buy and hold for the AI hardware growth story.
Meanwhile, the company has eliminated its dividend to conserve cash for its new growth initiatives.
INTEL CORP. (Nasdaq symbol INTC) is the world’s leading maker of computer chips: its products power 65% of all personal computers and 80% of all datacentres.
The stock recently took a big drop after the company announced that it would cut 15% of its workforce due to slowing demand for chips that power datacentres. It’s also suspending its $0.125-a-share quarterly dividend and cutting its capital spending. These moves should save it $10 billion in 2025.
Meanwhile, in the second quarter of 2024, revenue fell 0.9%, to $12.83 billion from $12.95 billion a year earlier. That missed the consensus forecast of $12.94 billion.
That revenue decline was mainly due to lower sales of traditional chips to operator of datacentres as they invest heavily in other chips needed to power artificial intelligence (AI) applications.
If you exclude unusual items, earnings fell 84.6%, to $0.02 a share (or a total of $83 million) from $0.13 a share (or $547 million). That also missed the consensus estimate of $0.10 a share.
The lower earnings are mainly due to the higher costs to make Intel’s new AI chips compared to its regular chips. The company has shipped more than 15 million of its first “AI PC” chips, codenamed Meteor Lake, and expects to ship 40 million chips by the end of 2024.
Dividend Stocks: Intel is planning for the long run
Intel recently sold 49% of its chipmaking plant in Ireland to Apollo Global Management Inc. (New York symbol APO) for $11.0 billion. This plant currently makes Intel’s Core Ultra processors for personal computers. Future expansions now underway will also let the facility make advanced chips for datacentres.
The Apollo deal will help Intel with its new strategic plan to improve its technical expertise and expand its ability to make chips for other companies. The plan mainly involves building new chipmaking plants in the U.S. and Europe. In all, Intel will spend roughly $138 billion on these projects. Government grants and investments from strategic partners will help offset some of those costs.
Right now, Intel is using other chipmakers to produce its AI PC chips. However, the company will shift that production to its new plants over the next two years, which should lower its production costs and improve its long-term profitability.
We feel the firm is still a buy for patient investors who see long-term growth in AI hardware.
Recommendation in Dividend Advisor: Intel Corp. is a buy.
