Intel’s stock price has plummeted to near decade-lows, trading below its book value for the first time in decades. This starkly contrasts with Nvidia’s soaring valuation. This begs the question: Why Is Intel Stock So Low Compared To Nvidia? This analysis delves into Intel’s struggles, turnaround efforts, and potential for future growth, comparing its trajectory to Nvidia’s success in the AI boom.
Intel’s price-to-book (P/B) ratio has slumped below one for the first time since at least 1990. Source: Bloomberg.
Missed Opportunities and Market Share Losses
Intel’s woes stem from missed opportunities in burgeoning markets like smartphones and AI, coupled with significant market share losses to competitors like AMD and Nvidia. While Intel focused on central processing units (CPUs), Nvidia capitalized on the explosive growth of graphics processing units (GPUs), crucial for AI applications. Intel’s insistence on both designing and manufacturing its chips, while rivals adopted a “fabless” model, led to production delays and inferior chip performance. This has resulted in declining revenues and profit margins for Intel, pushing its stock price down. Meanwhile, Nvidia’s strategic focus on GPUs and its fabless model allowed it to ride the AI wave to unprecedented success.
Intel’s operating profit margins, in percentages. Source: Bloomberg.
Intel’s Turnaround Strategy
Intel is implementing a comprehensive turnaround strategy focused on restructuring, cost reduction, and reinvestment. The company has split into two main divisions: a product group focused on chip design and sales, and a foundry division responsible for manufacturing. This separation aims to improve efficiency and attract external customers to its foundry business. Aggressive cost-cutting measures, including workforce reductions and project delays, aim to improve profitability. Suspending dividend payments further frees up cash for crucial investments in advanced manufacturing technologies.
Intel has been losing market share in the data center segment to AMD. Source: The Wall Street Journal.
Future Prospects: Can Intel Catch Up?
The PC market’s projected return to growth, coupled with the rise of AI-powered PCs, presents an opportunity for Intel’s client computing group. However, its data center business faces stiffer competition from Nvidia’s dominant GPUs and the increasing trend of tech giants designing their own chips. Intel’s newly launched Gaudi 3 AI chip offers a glimmer of hope, potentially attracting price-sensitive customers or those with less demanding AI needs. The success of the foundry division hinges on attracting major clients and achieving profitability. Recent deals with Microsoft and Amazon suggest progress, but significant challenges remain. Intel’s investment in High NA EUV technology could provide a competitive edge in advanced chip manufacturing.
Intel vs AMD market share (all CPUs). Source: PassMark Software.
Valuation and Investment Considerations
A sum-of-the-parts valuation suggests Intel’s stock might be undervalued, even with conservative assumptions. However, the company’s turnaround is far from guaranteed. Investors should monitor key milestones, such as revenue stabilization, Gaudi 3 sales performance, margin improvement, foundry client acquisition, and successful implementation of new manufacturing technologies. Intel’s future hinges on flawless execution and regaining lost ground in key markets. While the potential for a rebound exists, significant risks remain. Nvidia’s current dominance in the AI market, driven by its superior GPU technology and strategic partnerships, makes it a formidable competitor for Intel to overcome.
Intel’s revenues from its client computing group and its data center and AI segments. Source: Finimize.
Conclusion
Intel’s stock price reflects the company’s past missteps and the challenges it faces in a rapidly evolving semiconductor landscape. While its turnaround efforts and investments in advanced technologies offer potential for future growth, the company faces an uphill battle against established competitors like Nvidia. Investors should carefully weigh the risks and potential rewards before investing in Intel. The company’s success will depend on its ability to execute its strategy, regain market share, and capitalize on emerging opportunities in the AI and data center markets.
A sum-of-the-parts (SOTP) valuation of Intel. Source: Finimize.
Intel’s projected source and use of funds through 2030. Source: Finimize.
