Stock market performance in the prior year had been quite tumultuous, undergoing both upward and downward swings at substantial levels. The first half of the prior year had been bullish, as the global economy recovered from Covid-related impacts, easing restrictions, and the circulation of vaccines. However, the latter half brought in new challenges with high inflation circumstances. These were worsened by supply chain disruptions caused by Russia’s invasion of Ukraine.
With a fragile global economy already dealing with the economic fallout of the Covid-19 outbreak, these conditions brought in record-high levels of inflation, which continue to threaten economic stability. As a result of this bullish trajectory, which had turned into a bearish tumble with the onset of 2022, the stock market gains had effectively been reversed. The S&P 500 remains close to its level from a year ago, dropping merely by 1%.
The same, however, cannot be said for those holding stock of the semiconductor giant Intel Corporation (NASDAQ: INTC). Where the wider stock market had seen a bullish climb, which subsequently saw a reversal by a sharp tumble, Intel had been sliding downward throughout the year. To the dismay of INTC holders, Intel fell by nearly 28% throughout the year, against the comparable 1% of the wider market. A gap of such alarming proportions understandably raises concerns amongst investors. Based on these realities, those who invested $1000 in Intel a year ago would be left with a mere $724 of their original capital amount. Alternatively, investing in the wider stock market, on average, would have limited these losses substantially, leaving the investor with $990 of their investment amount. In light of these realities, INTC has proven to be quite the capital burner in the last year.
Intel’s downward slide goes far beyond the last year alone; Its slide has been evident in its performance over at least the last four years. Those holding the stock since 2021 had little substantive growth prospects to anticipate, as the stock continued its struggle against players from the semiconductor industry, on the competitive front.
While Intel computer chips prioritize performance, players such as Advanced Micro Devices (NASDAQ: AMD), and NVIDIA (NVDA) have left the once-iconic player far behind. By bringing forward dynamic chip infrastructure with unmatched processing power, Intel is becoming a thing of the past.
In comparison to the $276 capital loss of holding $1000 worth of Intel in the prior year, investors would be far better off having bought stock of Intel competitors. For instance, buying $1000 shares worth of AMD would have resulted in gains of nearly $260, whereas NVDA would have landed in a capital appreciation profit of $68.
Seeing the comparative trends above, it is evident that the semiconductor industry had outperformed the S&P 500 significantly, and in a correlated manner. Intel, however, was largely disconnected from this performance trend and had a tumble worse than that of the wider market. The company shows to be well past its glory days, with this bearish slide likely to continue as it loses market share to more dynamic players in the market.
Loss of Investor Confidence
As a consequence of its comparative performance to its peers, and the wider market, it comes as no surprise that the company is struggling to maintain confidence amongst market participants. One metric, which this is quite apparent is the incredibly low PE ratio that INTC holds in comparison to the wider industry.
In normal circumstances, a significantly low PE ratio would be perceived as being a strong indicator of an undervaluation. This is because the market is pricing the earnings from a specific company far beneath that of its competitors. However, as in the case of Intel, this could also indicate a severe lack of confidence from investors. In simple terms, there is a strong indication that investors perceive earnings from Intel competitors as being more valuable. This is especially true from a long-term perspective. Alternatively, Intel, despite having an extremely low price to its earnings, is one that appears to be quite unsustainable, in relation to the market on average.
INTC’s Competitive Outlook
This investor confidence, throughout the prior year, had evidently worsened for the company. This is apparent from its PE ratio fall from 12.80 to 6.86, in just the last 12 months. This comes despite a 141% increase in the company’s diluted YoY EPS figure for the first quarter of 2022:
When earnings go up, yet share price and PE ratio plummets, there is significant concern that is widespread. Typically, these worries tend to go beyond financials alone. Intel Corporation’s struggling competitive profile across the market hints that such growth may not be sustainable; Investors would perhaps be better off investing in the more dynamic players in the industry. As previously discussed, the growth these companies have witnessed has been remarkable. Furthermore, the decline in revenue over the year points to the market challenges Intel faces. It also points to the unsustainability of its earnings growth.
Growing Uncertainties for Intel
Recent news in the market pertaining to Intel’s developments did not help with this lack of confidence. For instance, Intel’s highly anticipated Arc-graphics card continues to face uncertainties. What was initially announced to be released in 2021, has been pushed forward to August 2022. The media reports caused an instant 2% fall in the company’s share prices. News reports of such a nature continue to dissuade investors from considering a position in INTC. They also add to the growing uncertainties regarding the company’s growth prospects.
Given the disappointment Intel has brought to its investors, which has been glaringly evident during the last year. One question comes to mind. What does the future hold for Intel?
Unfortunately, things do not look good. The economic challenges will only increase from this point onwards, and the threat of a recession becomes ever more likely. In the wake of such drastic macroeconomic shocks, underperformers are stripped off. Following this, the market begins to see a survival of the fittest phenomenon. Companies with strong growth prospects and robust financial profiles are typically able to maintain a sufficient safety cushion. These normally ensure they are able to survive difficult times.
For INTC to attain financial sustainability once again, its management would need to undertake radical strategic decisions. However, there is also a critical need for time and stability in the macroeconomic environment. If Intel is to survive the challenges it faces, we might very well see it emerging as an entirely different company altogether. In the meanwhile, its shareholders would need to buckle up, and prepare for the bearish tumble ahead.
Is there Hope for INTC Shareholders?
However, it is critical to point out that things may not be all over for Intel Corporation. We see evidence that the company is pushing ahead in its fight for survival through radical investment decisions. Its recent bid to acquire the Israeli company, Tower Semiconductor (NASDAQ: TSEM), indicates a glimmer of hope for Intel shareholders.
The move will not only strengthen the company’s operational network but would also expand its business in a move to become an end-to-end contract manufacturer. The edge nodes that TSEM offers have widespread utility in IoT sensors, as well as in power management technologies. Through this acquisition, Intel would gain access to trailing edge nodes that it has not previously focused upon. This would essentially bring in a more holistic product line-up for the company. The acquisition would further entail Intel gaining critical manufacturing clients. These include Broadcom (NASDAQ: AVGO), Teledyne (NYSE: TDY), as well as Skyworks (SWKS).
Intel has, for a long-time, occupied the spot of the most iconic computer chip manufacturer in the world. However, its rise to fame following the dot com bubble has proven short-lived, with its glory days far behind it. The loss shareholders have faced holding INTC in the last year alone is an appropriate snapshot to judge the stock’s longer-term prospects and performance.