Investors who poured into Intel‘s (NASDAQ:INTC) in 2023 without first understanding the company’s long-term fundamentals may see further losses. So far in 2024, Intel stock has plummeted 37.9%. The performance is in stark contrast to the stock’s doubling last year.
Back then, investors were excited about Intel’s relatively cheap valuation and any prospects the company had in competing against Nvidia (NASDAQ:NVDA). Unfortunately, investor sentiment has soured, and below are 3 reasons the stock might not recover.
Chip Quality and Intel Stock
Nvidia has dominated headlines for well over a year now due to its advanced artificial intelligence chips. The chipmaker’s CUDA developer software platform, which had been released in 2006, is also instrumental to GPU performance.
In March, Nvidia announced a new range of top-tier accelerator chips. Packing 208 billion transistors and boasting a 4-nanometer substrate from Taiwan Semiconductor Manufacturing Company (NYSE:TSM), the Blackwell series are the most powerful AI chips that the chipmaker has introduced thus far.
Intel is just not able to compete yet.
Intel’s most advanced Gaudi-3 chip series is a direct competitor to Nvidia’s popular but older H100 and H200 chips.
Not to mention, the Gaudi-3 will not even be available to the beginning of the third quarter this year. We can expect the Blackwell series to be on the market around that time.
AI Fatigue
U.S. equities have definitely had a volatile past couple of weeks. Nvidia had a brief moment of being the world’s most valuable company but has sunk to a valuation below that of both Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT).
According to Bloomberg, investor “fatigue” around AI stocks is probably setting in.
Quoting a portfolio manager at Allspring Global Investments, the news agency reported, “In the near-term, it is plausible that investors begin suffering from AI-fatigue or become more broadly concerned about index concentration.”
If that kind of fatigue is indeed upon us, that means investors will begin to scrutinize the quality of earnings of stocks that proport to be AI related.
Intel stock could very well have to deal with heavy scrutiny. The semiconductor company’s foundry business is flailing and advances in AI chip-making have been modest at best, when compared to Nvidia’s innovative prowess.
Low Valuation
Circling back to the statement that began this article, investors did pour back into Intel’s stock in 2023, looking for a play on the chipmaker’s relatively cheap multiple.
Intel started 2023 with a forward price-to-earnings ratio of 19.0x, whereas Nvidia boasted a P/E ratio of 37.9x forward earnings.
In 2024, Intel stock still trades at an enticing discount to its semiconductor peers. As of the end of Friday’s trading session, Intel’s forward valuation multiple is sitting at 24.4x forward earnings and Nvidia’s is around 42.5x.
However, investors should not be fooled again by these figures. Nvidia is trading at a premium because there is not only a lot of froth in the market but also its genuinely leading the AI chip space.
Intel is having trouble keeping up, which makes me believe the current discount is warranted and will not automatically translate to multiple expansion.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.