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Intel's shocking 40% plunge: Can massive investments and Government backing save the Tech giant?


Intel's shocking 40% plunge

Intel's shares have plummeted by over 40% this year, a decline that investors attribute to the company's failure to capitalize on the burgeoning artificial intelligence (AI) trend. This perceived misstep has led many to believe that Intel can no longer compete with its more agile competitors who have been quicker to integrate AI into their business models. In response to these challenges, Intel is attempting a comeback, bolstered by significant investments in new manufacturing facilities and substantial support from the Biden administration. These efforts, combined with the company's low stock prices, are drawing the attention of numerous potential investors. Intel is vigorously trying to convince the market of its ongoing relevance and its intention to challenge major players like Nvidia in the technological revolution.


Recent times have been tough for Intel shareholders, with little cause for celebration. As the largest producer of integrated circuits and microprocessors globally, Intel has seen its share price fall dramatically—more than 40% since the beginning of the year. This decline is largely due to disappointing financial results, which have compounded investor dissatisfaction. The company's inability to meet expectations has led to widespread disillusionment among its shareholders, casting a shadow over its financial health and market position.



Intel's main struggle has been its inadequate forecasts and its underwhelming utilization of artificial intelligence technology, which has not met industry expectations. Despite these challenges, Intel remains optimistic about its future prospects. The company has reaffirmed its commitment to driving growth, projecting an upturn in quarterly dynamics through 2024 and maintaining a steady quarterly dividend of $0.125 per share. However, these projections have not been well-received by Wall Street, especially given the modest 5% growth forecast in the AI and data center segments—figures that lag significantly behind those of Intel's competitors. For the second quarter, Intel predicts a non-GAAP earnings per share (EPS) of $0.10 with revenues ranging from $12.5 billion to $13.5 billion. These figures fall short of analyst expectations, which were set at an EPS of $0.26 and revenues of $13.59 billion according to CapitalIQ. This discrepancy has led to skepticism among investors, who see little in the way of a business catalyst despite the rapid growth in the AI sector.


However, Intel's plans for resurgence are not solely reliant on internal restructuring and operational improvements. The future holds potential transformative changes thanks to the backing of the U.S. government, which is particularly evident in the construction of a new $28 billion factory in Ohio. This large-scale investment is part of a broader strategy to revitalize Intel’s manufacturing capabilities and reduce America's dependence on Asian semiconductor production. The U.S. government's financial involvement underscores a national strategic interest in bolstering domestic chip production, a move hailed by politicians as essential for job creation and technological sovereignty.



During a recent announcement, President Biden emphasized the national significance of restoring America's semiconductor industry, highlighting that despite pioneering advanced chip technology, the U.S. now produces none of these sophisticated components. This statement was made as part of a broader initiative to support Intel through a generous subsidy package. The rebuilding of Intel’s manufacturing capabilities is being actively promoted by various stakeholders, including Republican state representatives and members of the Biden administration. The new Intel factory is poised to become a cornerstone of the administration's economic strategy, showcasing a commitment to restoring American industrial and technological leadership.


In March of the previous year, the U.S. government pledged substantial support to Intel, amounting to $19.5 billion in loans and grants. This funding is earmarked for several major projects, including the Ohio factory, and similar initiatives in Arizona and Oregon, all part of the Chips and Science Act. The envisioned "mega factory" in Ohio is set to be a pivotal development in the semiconductor industry, with the capacity to produce the most advanced chips required for modern smartphones and AI algorithms. Intel CEO Patrick Gelsinger expressed that this initiative is not merely ambitious but necessary for preventing economic decline in the U.S., as semiconductors are integral to almost every manufactured product. Gelsinger sees this project as crucial to the nation's economic health and national security.



Looking ahead to 2027, when the Ohio factory is expected to commence operations, investors are currently evaluating whether the present low stock prices represent a worthwhile investment opportunity. The potential for Intel to regain a competitive edge and become a leading force in the semiconductor industry is being carefully considered against the backdrop of its current financial and strategic positioning. This assessment is critical as it will determine the level of investor confidence in Intel's ability to realize its ambitious plans and redefine its role in the global technology landscape.


02.05.2024




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