Intel Corp (NASDAQ: INTC) has been striving to establish itself as a significant player in the artificial intelligence (AI) sector. However, Eric Ross, Chief Investment Strategist at Cascend Securities, warns that Intel is not truly an AI stock.
Ross criticizes Intel for lagging in process technology advancements over the past decade, which has contributed to the company’s disappointing earnings for its second financial quarter.
In Q2, Intel reported a 3% year-on-year decline in its data center revenue, suggesting that AI may not be the expected growth driver for the semiconductor giant.
Following this news, Intel’s stock plummeted more than 20% in premarket trading on Friday.
Intel trails behind TSMC
During an appearance on CNBC, Ross labeled Intel as “ancient history” due to its failure to aggressively transition its process technology from 14 nm to 10 nm, and then to 7 nm.
He highlighted that Intel is now nearly two generations behind Taiwan Semiconductor Manufacturing Company (TSMC), which has executed its technology transitions flawlessly.
As a result, Intel is losing market share even to Advanced Micro Devices (AMD), which benefits from TSMC’s advanced technology.
Ross also pointed out that Intel has poorly capitalized on the US government’s multi-billion-dollar initiative to onshore chip manufacturing.
He predicts that Intel will need at least two to three years of aggressive investment to catch up with TSMC in process technology, making the stock unattractive in the near to mid-term.
Intel stock falls amid gloomy guidance
Intel’s shares are taking a significant hit, not only due to disappointing earnings but also because of its plans to reduce its global headcount by 15%.
This means that approximately 18,000 employees will be laid off as the company aims to achieve $10 billion in annual cost savings.
Additionally, Intel suspended dividend payments for the fourth quarter on Friday.
For the current financial quarter, Intel has guided for a per-share loss of 3 cents on up to $13.5 billion in revenue, significantly below analysts’ expectations of 31 cents per share in earnings and $14.35 billion in revenue.
This stark contrast in guidance led Bank of America analyst Vivek Arya to downgrade Intel stock to “underperform” and lower his price target to $23, aligning with Intel’s current trading price.
Intel’s recent struggles highlight the challenges it faces in the competitive semiconductor industry.
Despite its efforts to rebrand itself as an AI-focused company, Intel’s technological delays and strategic missteps have hindered its progress.
The company’s need to play catch-up with industry leaders like TSMC and its failure to leverage government initiatives effectively suggest a challenging road ahead.
However, Intel’s commitment to significant cost savings and potential future investments in process technology may eventually position it better in the market.
Investors will need to watch closely how Intel navigates these challenges and whether it can regain its footing in the highly competitive tech landscape.
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