Market Warning: Intel Remains The Worst Of The AI Chip Stocks

Stocks to sell

Intel (NASDAQ:INTC) stock continues to decline, making it the worst performer in the S&P 500 index this year. Since January, INTC stock has fallen nearly 40%, placing it at the bottom of 503 companies listed in the benchmark S&P index. Today, the share price of Intel is 35% lower than where it was in 2019.

Very few people who bought the stock before the Covid-19 pandemic and held on have made any money. That chip stocks are booming right now amid a surge in artificial intelligence demand makes Intel’s underperformance all the more glaring. Investors should avoid this troubled company.

Another Bad Print for INTC Stock

Shares of Intel fell nearly 10% recently after the company reported another in a string of disappointing earnings and offered downbeat guidance. For this year’s first quarter, Intel announced earnings per share of 18 cents versus 14 cents that was expected on Wall Street.

Revenue came in at $12.72 billion compared to $12.78 billion that was expected among analysts. The latest print was the first since the company revealed that it had made its chip manufacturing business, called “Intel Foundry,” a separate line item.

Intel Foundry reported $4.4 billion in revenue during the quarter, down 10% from a year earlier. Worse, the company’s forward guidance came up woefully short, with management saying they expect earnings of 10 cents a share on revenue of $13 billion for the current second quarter.

That forecast was well off Wall Street expectations for earnings of 25 cents a share and sales of $13.57 billion. The problem seems to be that Intel continues to pour billions of dollars into its nascent foundry business making chips for other companies.

Most microchip and semiconductor companies specialize. Nvidia (NASDAQ:NVDA) focuses on graphics processing units that run AI models. Texas Instruments (NASDAQ:TXN) mostly makes chips for use in motor vehicles.

Intel, on the other hand, is trying to be all things at once, designing chips for personal computers, laptops, data centers, and AI applications at the same time as it tries to manufacture chips through its foundry unit. Sadly, the company isn’t doing any one thing well right now.

Government Lifeline?

As the U.S. government strives to secure a domestic supply of microchips and semiconductors and lessen America’s reliance on foreign chipmakers, it has been very generous with Intel.

Specifically, the company has been awarded $8.50 billion through the Chips and Science Act to help it develop chip manufacturing on U.S. soil. Intel has said that the government funding will support the creation of factories in Arizona, New Mexico, Ohio, and Oregon.

Intel also expects to receive federal loans up to $11 billion and a tax credit benefit on up to 25% of more than $100 billion in qualified investments.

The government support comes after Intel halted construction on a $20 billion chip plant in Ohio, citing a difficult operating environment and its precarious financial position.

In the meantime, Intel has unveiled a new microchip called the “Gaudi 3″ that the company says can be used to train and deploy big AI models and chatbots.

In launching the Gaudi 3 chip, Intel said that it is twice as power-efficient and one-and-a-half times faster than Nvidia’s competing H100 microchip that is widely used with AI.

Intel said that the new Gaudi 3 chip would be available to customers in the third quarter of this year, though it didn’t provide an exact date or price range.

It remains to be seen if the government funding and new AI chip can revive Intel’s fortunes and get the company moving in a more positive direction.

Don’t Buy Intel Stock

On a regular basis, there are media reports of Intel CEO Pat Gelsinger continuing to buy Intel stock as the price sinks. At the end of April, after the Q1 print sent INTC stock down to a new low for the year, Gelsinger paid $250,000 to purchase 8,100 shares at an average price of $30.85 each.

While the ongoing buying may show that Gelsinger has conviction in the company he runs, investors have no reason to be as bullish, especially as the share price shows no signs of having hit a bottom. Intel 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.

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