On Thursday, Intel Corporation (NASDAQ: NASDAQ:INTC) experienced a decline in share price, trading down 1.67% in the morning at $30.23. The stock has seen a significant drop of 36.74% year-to-date and is currently trading at a 25% premium over its book value. According to Lynx Equity Strategy, despite the current low levels, the stock could face further declines if the company's cash outflow issues are not resolved, suggesting that the premium could decrease.
The firm indicated that for regular investors, the stock does not present many opportunities, except possibly as a short-term trade based on expected disappointments in margin and cash flow metrics. Lynx Equity Strategy also noted the potential for activist investors to step in and demand changes from management due to accumulating negatives.
Earlier this week, Intel announced layoffs, which Lynx Equity Strategy believes were unplanned. The firm suggests that the second-quarter revenue may have been lower than management anticipated, necessitating the layoffs to protect margins and stop the cash outflow. Despite expectations for free cash flow (FCF) to hit a low in the first quarter, with improvements in the second half, Lynx Equity is skeptical given the company's struggling product line and the cash drain from Intel Foundry Services (IFS).
The consensus for fiscal year 2025 capital expenditures (capex) is to remain stable, but this would require an increase in cash flow from operations next year to balance the capex. If management cannot assure investors of this improvement, the capex forecast for the following year might need to be revised.
Lynx Equity Strategy also pointed out challenges in Intel's traditional data center segment, with no expected gains and potential order losses to AMD (NASDAQ:AMD) due to delays in Intel's Sierra Forest ramp-up. Furthermore, Intel's next-generation Granite Rapids is also delayed, which could lead hyperscale cloud service providers (CSPs) to prefer AMD's offerings.
On the artificial intelligence (AI) front, the firm is unimpressed with Intel's progress, labeling Gaudi2 as a temporary solution and expressing doubts about the timeliness of the next-generation Gaudi3 and Falcon Shore products. Additionally, the analysts anticipate customer interest in Intel Foundry Services (IFS) may wane due to delivery schedule slips, with similar concerns affecting new fabs.
In other recent news, Intel also announced the development of an optical compute interconnect (OCI) chiplet, aimed at enhancing data processing speeds within AI infrastructure. This initiative follows Intel's ambition to reach $1 billion in cumulative software revenue by the end of 2027, after a successful drive into software services.
In collaboration news, Intel's subsidiary, Mobileye, is expanding its technology partnership with Zeekr, a premium electric mobility brand. The partnership aims to accelerate the localization of Mobileye's technologies in China and integrate them into future Zeekr models for the global market.
InvestingPro Insights
Intel Corporation (NASDAQ: INTC) is navigating a challenging period, reflected in its recent stock performance. According to InvestingPro data, Intel's market capitalization stands at $126.73 billion, with a Price/Earnings (P/E) ratio of 31.01, which adjusts to 30.33 on a last twelve months basis as of Q1 2024. Despite a slight revenue decline of 2.09% over the last twelve months, the company has experienced a quarterly revenue growth of 8.61% in Q1 2024, indicating potential for recovery. Intel's dividend yield remains at 1.63%, showcasing its commitment to returning value to shareholders, a trend maintained for 33 consecutive years.
An InvestingPro Tip highlights Intel's position as a prominent player in the Semiconductors & Semiconductor Equipment industry, which may reassure investors of its market stability. Additionally, while the stock has taken a significant hit over the last six months, with a total return of -28.61%, analysts predict the company will be profitable this year, which could signal a turning point for Intel. For investors seeking more in-depth analysis, there are additional InvestingPro Tips available at https://www.investing.com/pro/INTC, offering a comprehensive look at Intel's financial health and market position.
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