In 2024, the chipmaker giant Intel (INTC) lost more than 60% of its value, following a 90% gain in 2023. The company has struggled with its dual business model of designing and manufacturing chips, a complex and capital-intensive task that has led to significant market share losses. While Intel’s stock is now trading at a much lower valuation, reflecting reduced risk, this discount also underscores the immense challenges the company faces. A major turnaround is needed, but it remains unclear, requiring drastic changes to Intel’s strategy and structure to recover in 2025. Given these uncertainties, I maintain a neutral outlook on the stock.
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In this article, I’ll dive deeper into the issues Intel faced in 2024, the steps it must take to overcome them in 2025, and what the market expects moving forward.
Why Intel Has Severely Underperformed in 2024
Before diving into my neutral rating for Intel heading into 2025, it’s important to understand the key reasons behind the company’s 60% decline in stock value throughout 2024. This severe underperformance can be attributed to a confluence of factors, which I’ll outline below:
- Leadership Instability and Strategic Shifts: One of the primary reasons for Intel’s struggles in 2024 was the instability at the top. Intel’s CEO Pat Gelsinger was ousted in early December, signaling significant dysfunction in the company’s leadership. His sudden departure and the appointment of co-CEOs Michelle Johnston and David Zinsner created a sense of uncertainty.
- Challenges with INTC’s Dual Business Model: Intel’s complex, dual business model, in which the company both designs and manufactures chips, has become a significant obstacle in today’s highly competitive market. Rivals like Nvidia (NVDA), AMD (AMD), and Apple (AAPL) focus solely on chip design, while TSMC (TSM) specializes in chip manufacturing without the burden of design. This division of labor has allowed Intel’s competitors to operate more efficiently. As a result, Intel’s market share has been shrinking, with companies like TSMC and AMD gaining ground.
- Strain from High Capital Expenditures: Intel’s financial results have also been affected by its massive capital expenditures (CapEx). In the trailing 12 months, Intel has invested nearly $25 billion, representing 45.7% of its revenue, a significant increase from its historical average of below 40%. Meanwhile, Intel’s cash flow from operations has declined by a substantial 33% over the past twelve months, highlighting a concerning imbalance between its high level of investment and declining cash flow.
Issues that Intel Must Address in Fiscal 2025
To shift the extremely bearish outlook for Intel in the coming year, several key issues must be addressed. Although my skepticism remains strong, these steps are critical for any potential recovery.
First, Intel must resolve its leadership instability and clarify its strategic direction. A key decision will be whether the company continues to operate as both a design and manufacturing entity or if it chooses to separate these functions. If Intel decides to maintain its dual business model, it must develop a sustainable and profitable strategy for managing both sides of the business. Notably, Intel’s co-CEOs have acknowledged that the possibility of splitting the company is an open question, which marks a potential shift from the former CEO’s reluctance to address this issue.
If Intel proceeds with selling its manufacturing division, success will hinge on whether it can extract maximum value from this sale. The proceeds should be reinvested in its core business—primarily in design and product development—or used to fund research and development (R&D) to regain a competitive edge. This is particularly important as Intel has fallen behind its competitors in areas like performance, power efficiency, and price-to-performance.
New management will also need to focus on improving operational efficiency, including aggressive cost-cutting measures and a renewed focus on the most profitable and scalable areas of the business. Re-evaluating CapEx will be essential in this effort, and investors should closely monitor this metric throughout the year, as it will be critical to Intel’s successful recovery.
Is Intel Stock a Buy, According to Analysts?
Unlike my neutral rating on Intel, market forecasts for Fiscal 2025 are slightly more optimistic. Analysts expect Intel to report EPS of $0.98 by December 2025, marking a strong recovery from the projected loss of $0.15 per share for the full year 2024. On the revenue side, projections suggest 6% growth to $55.84 billion, compared to an expected contraction of 3% for the full year 2024.
However, these projections don’t necessarily indicate strong optimism for Intel’s stock. Despite the company’s low price-to-book ratio of 0.8x, 60% below its five-year historical average, analysts remain cautious. The consensus on Wall Street is a “Hold” rating for Intel. Out of 27 analysts, only one is bullish, 21 are neutral, and five are bearish.
Analyst Patrick Moorhead of Moor Insights & Strategy, however, believes there are long-term reasons to be optimistic. He points to Intel’s upcoming high-performance products, including an AI GPU for data centers, which could help the company regain its competitive edge. While INTC stock has struggled under CEO Pat Gelsinger, Moorhead suggests that the company’s turnaround plan is heading toward a pivotal moment in 2025-2026. This period will be crucial as Intel competes head-to-head with AMD, and investors will need to be patient as the company builds the foundation for its next phase of growth.
Conclusion
I share the neutral consensus among analysts regarding Intel, acknowledging that the company must make drastic operational and strategic changes to attempt a business turnaround in 2025. In my opinion, the execution risk is immense.
Producing chips is one of the most complex and capital-intensive activities in the world, and only a few companies can truly excel at it. I don’t have a more bearish outlook on Intel because, given its current valuation, I believe there’s a strong likelihood the stock will rally once the company announces a new CEO and a refreshed strategy to reclaim its position in the semiconductor industry—even if that involves spinning off parts of the business. However, the possibility of such a rally remains highly speculative.
