The market for artificial intelligence chips is heating, and there are clear winners in 2023 so far. Unfortunately, Intel (NASDAQ:INTC) stock isn’t one of those winners.
Moreover, don’t assume that Intel’s capital position will improve quickly this year or even next year. The bull case just isn’t strong enough to recommend INTC stock right now.
Sure, it would be nice to see a movie-like happy ending to Intel’s story. However, investors need to be realistic.
Intel lost market share to other chip makers during the past couple of years, recently slashed its dividend and posted its first negative-income quarter in a long time.
Unless there’s a miraculous catalyst to rescue Intel, we’re standing by our “D” grade for Intel stock. There are large-cap technology companies to consider betting your money on – some of which are favored by Wall Street’s experts – but Intel isn’t on the list.
Keeping Track of Intel’s Capital Position
One quick way to keep tabs on a company’s capital position is to check its free cash flow. Intel’s free cash flow turned negative this year and stayed that way throughout 2023.
Surely, that’s not a good sign for Intel. As the analysts with Wolfe Research see it, there’s “little chance” of Intel generating cash flow even if there’s an industry-wide recovery in 2024.
Along with their concerns about Intel’s cash flow, the Wolfe Research analysts continue to expect Intel’s recovery to be both lengthy and costly. With all of that in mind, the analysts assigned INTC stock an “underperform” rating and a $27 price target.
That price target implies significant downside potential for Intel stock, but it’s not entirely unrealistic. Prospective investors should keep tabs on Intel’s capital position, and then think twice before buying the stock if they don’t see meaningful improvement.
AI-Chip Arms Race Won’t Benefit INTC Stock
By now, you might be getting the impression that Wall Street’s experts aren’t super bullish about INTC stock. If so, then you’ve got the right idea.
Out of 27 prominent analysts, 17 recently issued a “hold” rating on Intel shares, while six issued a “sell” rating and only four issued a “buy” rating on the stock.
That’s understandable, as Intel has posted multiple consecutive quarters of declining revenue. And, we already mentioned Intel’s recent switch from quarterly positive income to negative income. Overall, it’s not looking good for Intel and the company’s shareholders.
Plus, Susquehannah analyst Christopher Rolland sees another potential problem for Intel.
Issuing a “neutral” rating on Intel stock, Rolland expects that more spending on GPU chips for AI applications could mean less spending on data-center infrastructure and this may be highly problematic for Intel.
Intel won’t likely be a beneficiary of the ongoing AI-chip arms race. As Rolland put it, “AI remains a mixed story for Intel … we remain cautious on Intel’s server competitiveness for the next several years.”
In addition, “Without meaningful hyperscale [cloud] capex increases this quarter, we fear AI server GPU purchasing could crowd out wallet share for CPUs.”
So, once again we’re seeing the theme of Intel potentially losing vital market share. That’s what got Intel into the market’s doghouse in the first place. And if Rolland’s assessment is right, it could be an ongoing problem for the company this year.
Intel Stock Isn’t a High-Conviction Pick
It’s hard to pinpoint just one reason analysts aren’t particularly bullish about Intel stock. In actuality, there are multiple reasons. Intel’s financials aren’t ideal. Also, the company might lose significant market share because of the strong demand for AI chips.
This doesn’t mean Intel is a failing company, by any means. However, discerning investors should monitor Intel’s financials closely and look for improvement.
They can also hope that Intel makes significant inroads in the hyper-competitive AI-chip market. For now, however, INTC stock only earns a “D” rating and isn’t a high-confidence pick for 2023’s second half.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.