Intel (INTC (opens in new tab)) stock has been lagging the broader market for more than 20 years, hurt by the rise of nimble competitors, manufacturing delays and the fact that the world's largest semiconductor company missed out on some of the biggest changes in technology of the past couple of decades.
But Intel, a component of the Dow Jones Industrial Average, insists that it's set to turn all that around. The company on Monday affirmed that it remains on target to regain leadership in semiconductor manufacturing.
A multi-year effort to return to the forefront of production technology will allow the firm to reverse market-share losses to competitors such as Advanced Micro Devices (AMD (opens in new tab)) and Nvidia (NVDA (opens in new tab)), Intel says. And if that weren't bold enough, Intel even has designs on competing with Taiwan Semiconductor Manufacturing (TSM (opens in new tab)) in the market for manufacturing chips for other semiconductor companies.
TSM, incidentally, recently became one of Warren Buffett's top stock picks. (opens in new tab)
Intel is indeed the world's largest chipmaker (opens in new tab), with commanding market shares in central processing units for personal computers (PCs) and data center servers. But its business, as we have been reminded many times over the years, is a slowly melting iceberg. PCs, after all, are in secular decline.
True, data centers are an area of growth in a future increasingly powered by artificial intelligence (opens in new tab), but investor interest has shifted to firms that make chips for mobile devices and the Internet of Things. In these endeavors, Intel is an also-ran.
In other words, Intel's current strategy is critical to the stock's long-term success. Bulls contend that if the company is able to deliver on its aspirations, it could provide the catalyst INTC stock needs to shake off its multi-decade run of underwhelming returns.
With that as our backdrop, it's probably at least somewhat disheartening to INTC bulls that Wall Street remains very much on the sidelines on Intel stock. As illustrious and widely held as Intel stock may be, it's a "show me" story at best, analysts say.
Past performance, as we all know too well, is not indicative of future returns, but one look at Intel stock's long-term chart is reason enough to be skeptical about the firm's promises. The chipmaker has tried to reverse its fortunes many times before, and yet INTC stock's track record shows only that investors would have been better served putting their capital elsewhere.
Over the past three years, INTC stock delivered an annualized total return (price plus dividends) of -17.2%. The S&P 500, meanwhile, delivered a three-year annualized total return of 10.4%. At five years, INTC stock's annualized total return stands at -5.1% vs. 10.7% for the broader market.
Things get better when we look back farther, but not by much. Intel stock generated positive annualized total returns over the past 10, 15 and 20 years – but still lagged the broader market by at least 5 percentage points in every one of those periods.
Little wonder, then, that not only does the Street's consensus recommendation on INTC stock stand at Hold, but it's been stuck there for a very long time.
Of the 43 analysts issuing opinions on Intel stock tracked by S&P Global Market Intelligence, seven rate it at Strong Buy (opens in new tab), two say Buy, 24 have it at Hold, five call it a Sell and five rate it at Strong Sell. Moreover, Intel stock has held a rating no better than Hold since early 2019.
In other words, analysts as a group haven't been constructive on the name for years. Sadly for bulls, Intel's current strategy hardly has them changing their minds.
Oppenheimer analyst Rick Schafer, who rates shares at Perform (the equivalent of Hold) does a good job summing up Wall Street's lack of enthusiasm for INTC stock.
"Intel remains largely tied to PC growth, and our relatively bearish stance reflects our belief that the PC market has begun a secular decline," Schafer writes in a note to clients. "Intel has stumbled on its technology leadership, falling behind peers as they struggled to transition to 10 nanometer manufacturing."
Susquehanna Financial Group takes an even dimmer view of Intel stock's prospects. Analyst Christopher Rolland, who rates shares at Negative (the equivalent of Sell) downgraded INTC earlier this year from Neutral (Hold). He cites a slew of headwinds, including increased competition in servers and PCs – notably from Apple (AAPL (opens in new tab)) – as well as a "work-from-home (opens in new tab) hangover" that's depressing sales of Windows devices.
Rolland further worries about longer-term pressures on Intel as it "moves to more complex, multi-packaged and smaller geometries, and as increased competition pressures pricing."
Intel stock trades at just 14.7 times analysts' 2023 earnings per share (EPS) estimate. That's cheaper than the broader market. But then the Street forecasts Intel's EPS to decline at an average annual pace of more than 11% over the next three to five years.
It's hard to make a bull case on valuation based on that sort of earnings forecast. Most analysts don't even try to.
Warren Buffett has said that the problem with most turnarounds is that they don't turn. Berkshire Hathaway (BRK.B (opens in new tab)), of which Buffett serves as chairman and CEO, actually owned Intel a decade ago (opens in new tab). The stake underperformed and he dumped it in fairly short order.
Something tells us Warren Buffett won't be biting on Intel stock amid the chipmaker's current turnaround efforts either.
Dan Burrows is Kiplinger's senior investing writer, having joined the august publication full time in 2016.
A long-time financial journalist, Dan is a veteran of SmartMoney, MarketWatch, CBS MoneyWatch, InvestorPlace and DailyFinance. He has written for The Wall Street Journal, Bloomberg, Consumer Reports, Senior Executive and Boston magazine, and his stories have appeared in the New York Daily News, the San Jose Mercury News and Investor's Business Daily, among other publications. As a senior writer at AOL's DailyFinance, Dan reported market news from the floor of the New York Stock Exchange and hosted a weekly video segment on equities.
Once upon a time – before his days as a financial reporter and assistant financial editor at legendary fashion trade paper Women's Wear Daily – Dan worked for Spy magazine, scribbled away at Time Inc. and contributed to Maxim magazine back when lad mags were a thing. He's also written for Esquire magazine's Dubious Achievements Awards.
In his current role at Kiplinger, Dan writes about equities, fixed income, currencies, commodities, funds, macroeconomics and more.
Dan holds a bachelor's degree from Oberlin College and a master's degree from Columbia University.
Disclosure: Dan does not trade stocks or other securities. Rather, he dollar-cost averages into cheap funds and index funds and holds them forever in tax-advantaged accounts.
Gaining More Certainty in Your Retirement Income Plan
Relying on market performance to close the gap in your retirement income could let you down, but a CD ladder and fixed annuities could provide some certainty.
By Cole Czajkoski, Investment Adviser Representative • Published
Considering a 1031 Exchange? The Rules You Need to Know
Taxes are an inevitable part of investing in real estate. You can, however, defer or avoid paying capital gains taxes by following some simple rules of a 1031 exchange. Yes, you read that correctly!
By Daniel Goodwin • Published