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Intel's bad year worsens, with analyst decrying company as 'profoundly broken'

By Emily Bary

Stock is one of the S&P 500's biggest losers this year

Intel Corp.'s bad year is getting worse as the chip stock experiences another sharp slide in the wake of earnings.

Shares of Intel (INTC) are down about 9% in Friday's midday trading after the company came up short with its revenue and margin outlooks for the current quarter. It's the second significant post-earnings selloff in as many quarters for Intel's stock.

Intel is the third-worst performer in the S&P 500 SPX so far this year, with a roughly 36% stock-price decline over the course of 2024.

See also: Intel's earnings forecast fails to clear low bar, and the stock's drop continues

"We'd like to believe the bottom is in but we have lost count of the times we have heard it," Bernstein analyst Stacy Rasgon wrote.

He sees an "extremely challenged" short-term picture for the company. Over the medium term, "management continues to put a hockey stick into numbers, adding risk to an already precarious position."

"And while we believe they are doing everything they can to try to repair things it is clear that the company is profoundly broken, and it will take years to see the fruits of their (currently exhaustive) labor, with success in their endeavors far from assured amid execution difficulties and structural headwinds," he added.

Don't miss: Nvidia isn't just a chip stock, and could soar 30% when investors realize that

Rasgon has a market-perform rating and $35 target price on Intel shares, down from a $42 target before the report. "With few catalysts in either the near, medium, or longer term we struggle to see why anyone would want to own the shares at this point," he commented.

Baird's Tristan Gerra also saw challenges ahead for Intel.

"Gross-margin expansion next year in the face of higher startup costs is dependent on revenue growth, yet we see the x86 market [total addressable market] as very low single-digit growth medium term with the shift to accelerated data centers continuing to benefit [graphics processing units], along with the looming threat of ARM gaining traction in the PC ecosystem," he wrote, while keeping his neutral rating and $40 target price.

Investors have been concerned that the artificial-intelligence boom favors GPUs and thus will eat into budgets for Intel's central processing units.

Rosenblatt's Hans Mosesmann said that Intel was going through a "structural multi-year reconstruction in the areas of historical expertise (CPU architecture and process technology) and areas outside such as AI."

But in his view, Wall Street is "beyond the stage where platitudes on all things AI are resonating."

Mosesmann rates the stock at sell with a $17 target price.

But Melius Research's Ben Reitzes remained upbeat.

"Call us crazy, but we do still think things pick up" in the second half of the year, he wrote.

The company could see the beginning of a corporate PC refresh and a stabilization for its traditional server business. Intel also stands to benefit from uplifts to average selling prices.

"The other positive nugget in the quarter was the revelation that its Gaudi 3 accelerator revenue would top $500 million this year in [the second half], implying a steep ramp and momentum into 2025," Reitzes wrote. "Nobody is expecting a few billion in AI accelerator revenue from Intel."

He has a buy rating and $41 target price on Intel shares.

See also: Nvidia stands to benefit as Meta spurs an even greater AI spending spree

-Emily Bary

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04-26-24 1229ET

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