AI chip stocks have been zooming higher in recent days. Intel (NASDAQ:INTC) shares are no exception. Yet while a quick move back to the mid-$30s per share for Intel stock may look like a sign to buy before it’s too late, consider the following before putting in a “buy” order.
The market may keep bidding up AI chip plays across-the-board, mostly on growing confidence in their ability to capitalize on the AI growth trend, but that may not necessarily be what’s driving INTC’s latest rally.
Don’t forget, too, that Intel’s other main potential catalyst continues to look questionable as well. With this in mind, while it is possible that the rising tide will continue to lift INTC higher in the near-term, a move back to prior price levels could creep up on you.
Intel Stock: The Real Reason Behind its Recent Rally
Shares in early-movers that quickly capitalized on the Gen AI growth trend have already made high double-digit and in some cases, triple-digit percentage moves higher since 2023.
Hence, it’s understandable that investors are now looking to get in on the ground floor with some new potential AI winners in the making.
Again though, as hinted above, this may not be the reason why investors are bidding up Intel stock all of a sudden. At least, that’s the view of Mizuho’s Jordan Klein.
Earlier this week, the sell-sider argued an alternative explanation for the AI chip rally. In a nutshell, Klein believes AI chip stocks like INTC have soared due to short covering, not increased confidence in fundamentals.
Klein is doubtful that Intel will deliver negative surprises with its AI growth numbers during the latter half of 2024. However, at the same time he doesn’t see investors straying far from the “show me” stance about INTC.
He doesn’t see the stock moving much further than where it changes hands today. When it comes to Klein’s take, we partially agree. We concur that near-term upside is limited, but downside risk, rather than minimal, remains moderately high.
Correction Risk Runs High, and Not Just Because of AI
Last month, when discussing Intel stock, we argued that investors have priced-in AI growth possibility as a near-certainty. Since making this argument, the valuation of INTC has increased, making it even more of a potential “priced for perfection” situation.
That is, with shares trading for 31 times forward earnings, the market is assuming that Intel’s AI chip rollout, particularly with AI-PC chips, will lead to a tremendous surge in annual earnings next year, from $1.10 to nearly $2 per share.
However, only time will tell whether Intel’s AI chip rollout, including the debut of its Lunar Lake AI-PC chips later this year, will live up to the hype.
If results meet or beat expectations, potential upside may be minimal. However, if results fall short, the impact on INTC could be severe. The stock could tumble as the market re-rates it to a lower valuation.
Besides the risk of a sell-off on AI disappointment, more bad news regarding Intel’s foundry catalyst could again place downward pressure.
Confidence in this catalyst has diminished dramatically, after the disclosure of big foundry losses earlier this year. Still, subsequent news may further weaken confidence that this big foundry gamble will ultimately pay off.
Stay on the Sidelines, and Off the Bandwagon
Instead of hopping onto the INTC bandwagon, staying on the sidelines continues to be the better move. Again, it’s possible that there’s no bandwagon of bullishness forming at all, just a temporary wave of short-covering.
Even if this is a naturally-occurring resurgence of bullishness, there’s still much more out there that could cause shares to sink rather than continuing surging towards prior price levels.
That’s not to say that INTC is an “avoid” at any price. Following a reversal, it may be worthy of a second look. At lower prices, the above-mentioned uncertainties could be accounted-for, and then some.
Until then, however, while no one is stopping you from entering a position, you may want to take heed of our cautious view on Intel stock.
Intel stock earns a D rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
On the date of publication, the responsible editor did not have (either directly or indirectly) and positions in the securities mentioned in this article.