Intel (NASDAQ:INTC) has been the biggest technology disappointment of the century, so far, but it’s still the most important tech company of this decade. Some are saying now is the time to buy Intel stock.
Intel’s failures over two decades came under a series of marketing executives. Its rise, if it is to happen, will be because of Pat Gelsinger. He’s a manufacturing executive who started his career at Intel but was at VMWare when he was called back in early 2020. He understands fabrication.
Fabrication and Intel Stock
Gelsinger’s strategy is to rebuild Intel as an American chip manufacturer, with new “fabs” in Ohio and Arizona, and substantial government help. Since he took command in February 2020, the stock has lost almost half its value.
Gelsinger is putting $100 billion into his foundry plan over five years. Your tax dollars represent $8.5 billion of that. He says the company’s goal is to have half the world’s most advanced chips produced in the U.S. or Europe by the end of the decade.
Intel moved its manufacturing offshore during the 20th century, most notably to China, because it was cheaper. Chinese workers earned less. China’s environmental regulation was lax, and local protests easily ignored.
Intel Foundry will have higher running costs, and Gelsinger will still hand off work to Taiwan Semiconductor (NYSE:TSM) and Samsung (OTCMKTS:SSNLF) when necessary.
Intel’s Arrow Lake processors, due later this year, will have circuit lines just 2 nanometers apart. Intel calls this distance “20 Angstroms,” and plans to hit 18 Angstroms next year. In 2026 it hopes to reach 14 Angstroms.
The promise of this approach can be seen in the success of Taiwan Semiconductor, now best known for making Nvidia’s (NASDAQ:NVDA) GPUs. TSMC’s stock is up 86% this year, 358% over the last five years, and it’s now worth nearly 7 times Intel. Its market cap briefly touched $1 trillion recently before falling back.
The Bear Thesis
It’s on the design side of chip making that Intel is getting killed.
ARM Holdings (NASDAQ:ARM) is licensing its Intel-compatible CPU design to Qualcomm (NASDAQ:QCOM) and Microsoft (NASDAQ:MSFT).
Nvidia is also licensing ARM technology for a gaming CPU, due out next year. Even if that chip is made at an Intel foundry, most of its value will be in the software.
Intel still has four-fifths of the CPU market. It’s hard to see that continuing in the face of the multi-ARM race that’s coming.
Intel should easily reach $55 billion in sales this year. But it had $79 billion in sales when Gelsinger took over. Profits are down 80% and the company is expected to earn just $1.01 per share this year.
There are two reasons why some analysts are putting Intel back on their buy lists. First is the expectation that those new foundries will soon generate a return. Second is its relative valuation, now just over twice sales, at a time when TSMC is selling for nearly 25 times sales and the AI tide keeps rising.
The Bottom Line
Investors have been sitting on losses in Intel for years now.
Analysts who, like me, have bought Gelsinger’s promises, counseled patience, and bet on the foundry plan look very stupid right now.
But Intel is, as I’ve said, the most essential company in the U.S.. If Intel can’t make the foundry work, America’s hopes of regaining the semiconductor market will go with it. So will a lot of your tax dollars.
But I’m past taking promises at face value. Intel is running out of time. At TipRanks the professional analysts have mostly moved on. At Stocktwits, traders are neutral.
If Gelsinger can’t get some profits out of the foundry soon, maybe it’s time to sell out to the Chinese. If he can, watch out, because right now no one believes it.
As of this writing, Dana Blankenhorn had a LONG position in NVDA, TSM and INTC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.