Intel’s stock price dropped 6.19% today, closing at $47.13, marking a lack of investor confidence in its short-term profitability despite its massive AI bets. The semiconductor giant is already losing ground in CPU manufacturing to competitors like AMD, and missed the AI boom to Nvidia.
Investors view Intel’s foundry projects as a highly ambitious move to regain its lost leadership in the semiconductor industry. It split its operations into Intel Products and Intel Foundry in April 2024 and committed around $100 billion to the foundry dream. The market responded by driving its share price down, as foundry projects have extended the return on investment timeline.
How Intel Missed the AI Wave
Intel had the potential to drive the AI wave like how Nvidia did, but failed big time in converting its leadership into revenue. The company is viewed as a failure in the tech sector because it surrendered its prime positioning held before the AI boom, when it dominated CPU production.
Software bugs in Intel’s Gaudi 3 AI accelerators set them back during the inception of the AI boom, whereas competitors like Nvidia released advanced GPUs that catered to the immense processing power required by AI. Now, all major AI models are trained on Nvidia’s Chip making it the most valuable tech company, ranking number 1 in the Nasdaq 100 index.
While Nvidia tops the Nasdaq 100 with a 13.48% weightage, Intel is at 20th with a small weightage of 0.69%. While Nvidia’s stock price climbed by a massive 1160% in five years, Intel’s share price fell by 20.25% during the same period. Intel has been trying to regain its prime position through its foundry project and compete with Taiwan’s TSMC, which produces more than 90% of all advanced AI chips.
Foundry Fiasco: Billions Lost, Yields Lagging
Intel’s foundries suffered a $12B loss during the 2021-23 period due to supply shortages and low yields. The specialised 18A chips received recognition from the AI industry, which entered a strategic partnership with Nvidia. The announcement about mass-producing 18A chips in the Arizona Fab was well received by the market as share prices climbed.
But the foundry dreams were set back as the yield (percentage of chips that pass the standard) was at 55-65%. The industry standard is 80-90%, hence the foundry was bleeding cash instead of creating revenue. Despite the lost billions, low yield, and inability to meet the AI demand, Intel continues to pour billions into its foundries to become the next TSMC.
Analyst Takes on Intel Future
Wall Street sees a 2.52% upside for Intel with a target price of $48.32. Although the consensus average numbers remain positive, many analysts like J.P.Morgan’s Harlan Sur have given a sell rating to Intel shares, as he sees a 25.74% downside with a $35 target price.
Intel’s stock prices may fall further if it keeps burning funds on fabs without improving its revenue. Analysts are closely watching its share price and next earnings report, which is due on April 23rd.
