Intel: Setback in Q2 2024, but Potential Remains Promising

Intel, once a leader in chip manufacturing, has faced several setbacks in recent years. Although the stock price has fallen by 40% since 2014, there was a tendency towards improvement last year. To respond to the surge in artificial intelligence (AI), Intel has introduced a new line of AI-capable chips at competitive prices and is once again focusing heavily on its own manufacturing. Over the last ten years, Taiwan Semiconductor Manufacturing (TSMC) has taken a significant portion of Intel's market. Intel now plans to break this dominance by building several plants in the U.S. to meet the high demand for high-quality chip manufacturing. This could help Intel regain market share and benefit from the increasing demand for AI chips. However, a recently released quarterly report disappointed investors, leading to a 27% drop in the stock price. The figures for the second quarter of 2024 significantly fell short of Wall Street expectations, and the company announced the suspension of the dividend for the fourth quarter and the reduction of 15,000 jobs. Despite these short-term setbacks, Intel remains a long-term attractive investment. The billion-dollar investments in market capacity for chip manufacturing could pay off in the long run. CEO Pat Gelsinger emphasized the strategic importance of the new AI-capable Core Ultra PC chips and projected that their market share would rise from currently under 10% to over 50% by 2026. Additionally, CFO David Zinsner outlined that shifting chip wafer production from Ireland to Oregon would initially increase costs but ultimately improve profit margins. Intel is committed to expanding its capacities in the U.S. Tensions between the U.S. and China could impair access to TSMC's production facilities, which could benefit Intel. Supported by President Biden's CHIPS Act, Intel receives substantial financial resources to build at least four chip factories in the U.S., including a facility in Ohio that is set to become the largest AI chip factory in the world. While TSMC is also receiving funds to build a plant in Phoenix, Intel's dual role in design and manufacturing could give it a competitive edge. This could result in more attractive operating margins and stronger control over its products. Despite the recent decline in stock price, Intel's valuation is attractive compared to other prominent companies in the AI chip market. The current price-earnings and price-sales ratios indicate that the stock is trading at a better value than last year. This makes Intel a worthwhile investment in 2024, despite the recent losses.