Is this the year that Intel Corp. (NASDAQ:INTC) finally turns things around? After a sizable rally in the first third of the year, INTC stock finished 2021 in a tepid fashion. 2022 has been much worse thus far.
The world’s largest semiconductor chip manufacturer has been struggling to right its own ship for more than five years now, and has been eclipsed by competitors such as Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD).
This fact is reflected in the performance of Intel stock. In the past five years, INTC shares have gained 24%, compared to an 809% gain for NVDA stock and a gain of 700% for shares of AMD. Rival AMD recently celebrated the fact that its market capitalization of $188 billion now eclipses that of Intel’s, which stands at just over $180 billion.
However, after years of stagnant growth, declining market share, and share price underperformance, Intel appears to now have a plan in place that might finally help the Santa Clara, California-based company turn its fortunes around.
Pat Gelsinger became Intel’s chief executive officer (CEO) a little over a year ago, on Feb. 15, 2021. He came armed with a five year turnaround plan that will see Intel move away from the design of semiconductor chips to focus instead on becoming a foundry that manufacturers semiconductor chips for other companies, including its current rivals. To that end, Gelsinger has announced that Intel will spend $20 billion erecting new chip factories in Arizona and Ohio.
The company also plans to build a chip plant in Europe. News of the U.S.-based chip facilities was applauded by politicians who have criticized the current reliance on foreign chip foundries amid the ongoing global shortage in semiconductors.
At the same time, Intel is working double time to advance its own technology and come out with new semiconductor chips. The company is working on a server chip that uses extreme ultraviolet lithography and, once complete, will be a major breakthrough for Intel in terms of power and performance.
Over the last decade, Intel has fallen woefully behind its rivals in terms of technological advancements. Taiwan Semiconductor Manufacturing Company (NYSE:TSM), for example, now has microchips that operate on a 5-nanometer node compared to Intel’s 10-nanometer node. TSMC chips are literally twice as powerful and twice as efficient as those designed by Intel.
A Difficult Turnaround for INTC Stock
While Intel’s plans, and Pat Gelsinger’s vision, sound great, there are indications that advancing the company’s technology and pivoting to manufacturing chips will not be easy.
Case in point, INTC stock fell 5% on February 18 after it was announced during an investor day conference that the release of the heavily hyped new server chip would be delayed until 2024 from an initial date of 2023.
Gelsinger tried to counter skepticism about Intel’s massive turnaround effort, saying during the event that he will double the company’s earnings per share (EPS), but that it will take time and require investors to be patient.
Wall Street analysts and investors appear unwilling to look past Intel’s balance sheet and near-term outlook. Rather than focus on Gelsinger’s rhetoric, investors instead seized on the fact that Intel is forecasting a 4% decline in revenue this year, to $76 billion, due to its ongoing capital expenditures, as well as a sharp drop in profitability, down 27% from 2021 levels to $3.55 a share.
That forward guidance was enough to push INTC stock down further. Year-to-date, the share price has now declined 8% to $47.42. The company has stressed that it is maintaining its dividend, which pays a healthy yield of 3.13%. However, the dividend seems to be providing little comfort to shareholders.
INTC Stock Has a Ways to Go Still
It’s all about execution at this point. While Intel clearly has some lofty goals and an ambitious turnaround plan in place, it remains to be seen if the company can successfully implement its strategy and meet the timelines it has set for itself.
The delayed server chip and earnings downgrade for this year suggest that the company is continuing to struggle right now. As such, investors should take a wait-and-see approach with Intel.
Keep an eye on the company and its stock, but wait until it becomes clear that the ship has turned around before taking a position. In the meantime, there are many other semiconductor stocks that offer superior returns, such as Nvidia and AMD. Right now, INTC stock is not a buy.
On the date of publication, Joel Baglole held a long position in NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.