Strange as it seems to write these words, here we are: Intel stock is outperforming. I mean, it’s nowhere near Nvidia’s year-to-date tripling. But Intel’s 62% total return puts it solidly ahead of both the S&P 500 and PHLX Semiconductor indexes, which have returned 20% and 46%, respectively. Now to figure out whether Intel is a serial turnaround tease or a genuine blue-chip comeback. In other words, General Motors or Microsoft.
See, among the immutable laws of finance is that GM stock disappoints in the end—or at least, it feels that way. The latest iteration of shares debuted 13 years ago at $33 apiece following a bankruptcy restructuring. Two years ago, they shot into the high $50s on electro-robo-auto-2.0 euphoria. But gasoline tanks and steering wheels are still going strong. GM recently scrapped an electric-vehicle pact with Honda, slashed spending on a troubled robotaxi unit, and announced a big stock buyback and dividend increase. Recent share price: $33.
But sometimes hopeless stocks go on to glory. Microsoft ended bubbly 1999 at $58, and then tumbled into the $20s, adjusted for history’s least-convincing 2-for-1 stock split, carried out after the decline. And it stayed there for more than a decade, except for occasional head fakes into the $30s, and a collapse into the teens during the 2008-09 global financial crisis. Now it’s $369. It turns out that when the internet killed purchases of desktop software, it was really just a who-moved-my-cheese problem, and software is now selling quite nicely in the cloud.
Intel will not be reaching Microsoft heights anytime soon, or ever. Microsoft, valued at $2.7 trillion, or 92% as much as Apple, is a regular challenger for the title of biggest U.S. company. Intel, at $174 billion, is today only the fourth-largest U.S. chip company, behind Advanced Micro Devices, Broadcom, and Nvidia. But the question is, can Intel keep beating the market? Put it this way: Intel stock spent Microsoft’s lost decade in the teens and $20s, before starting a run that took it over $65 a few years ago, then plunging to $25 last year, and now rebounding to $42. So is the next stop $25 or $65?
Wall Street isn’t overflowing with Intel optimism. Among 42 analysts who cover shares, only nine say to buy. But pessimism peaked just before the stock’s latest run. Maybe it’s time to hear from a couple of the bulls.
Cody Acree at Benchmark, a New York City investment bank, gets credit for timing. He upgraded shares of Intel to Buy from Hold earlier this year, when they were around $30. Intel fell behind on manufacturing over the past decade as a new technology called extreme ultraviolet lithography, or EUV, proved crucial for continued miniaturization, explains Acree. Taiwan Semiconductor and Samsung Electronics were much faster than Intel to bet on EUV.
That proved a boon for Advanced Micro, a Taiwan Semi partner, which took the lead on technology and has amassed a third of the market for personal computer chips and 15% to 20% for data center chips. Qualcomm and Arm also vie for PC chips, and Apple makes its own. PCs contribute about 60% of Intel’s revenue and 40% of its profits. In addition to competitive pressures in Intel’s two biggest markets, Nvidia is perceived as having built an insurmountable lead in artificial intelligence chips, which have attracted a flood of spending in data centers.
So what’s to like about Intel? “I think that where we got bullish was once we saw that Pat Gelsinger’s management style was taking effect,” says Acree. Gelsinger will have been CEO for three years come February. Gelsinger announced massive investments in new chip factories, put in place a new system for defining and tracking worker goals, and set off a race to catch up with rivals on EUV-powered chip miniaturization at what Acree calls an “unheard of” pace by Intel’s standards.
This year, Intel announced plans to separate its manufacturing from its design business, with each group getting its own accounting. Designers will be free to chase chip advancements even if it means going to outside foundries. Intel’s factories could be better able to compete with Taiwan Semi for outside business.
For now, these changes aren’t producing obvious improvement on Intel’s income statement. And free cash flow is deeply negative on all the factory spending. But Acree points to a couple of early promising signs. One is that Intel’s market-share losses have begun slowing. Another is that the company has shifted from losing workers to competitors to gaining them.
In December, Intel will launch new PC chips. They’ll come with AI co-processors, which Acree explains will become increasingly important as the technology shifts from generalized tools like OpenAI to more commercialized products customized for, say, graphic design or finance.
“The more and more we tailor AI large language models to the individual need, then we can push AI decision-making into the client, onto your own PC, and it becomes extremely more useful,” says Acree. “I think that AI for Intel can be as big a driver as any new functionality to the PC.” That could push a PC upgrade cycle, he says. So might Microsoft dropping support for Windows 10 starting in 2025.
Intel has also developed AI-accelerated chips to compete with Nvidia in data centers. Acree says its latest designs have competitive benchmark scores and come in much lower than Nvidia on price. Mizuho Securities analyst Vijay Rakesh joined the Intel bulls last month, moving to Buy from Hold on shares. In a report, he cited a potential PC and data center upcycle next year; a “prolific” coming year for Intel product launches, which could boost market share and margins; and the cash coming from a spinoff of a past acquisition called Altera, which has been a poor performer.
Personally I’m a) intrigued but not yet fully convinced, and b) terrible at both picking and timing stocks. Maybe that’s contrarian bullish? Either way, Intel’s return to gushing cash will take time. Benchmark’s Acree reckons its current plans will keep it a heavy spender through 2026.
