Intel's stock experienced a significant decline of 26% due to ongoing challenges in its turnaround efforts.


Intel’s stock experienced a significant decline of 26% on Friday, marking its worst performance since 1974. This downturn was primarily attributed to the company’s decision to suspend dividend payments and implement workforce reductions as part of a strategic turnaround plan.

Intel’s market value diminished by over $30 billion following a disappointing forecast and the announcement of a 15% workforce reduction, raising concerns about its ability to compete effectively with rivals such as Taiwan’s TSMC and other chip manufacturers.

The stock closed at $21.48, its lowest point since 2013. Bernstein analyst Stacy Rasgon expressed grave concerns about Intel’s current situation, suggesting that the company’s challenges have reached a critical juncture.

Rasgon projected that Intel could potentially enhance its financial position by $40 billion by the end of 2025 through various measures, including subsidies and partner contributions.

While Intel’s manufacturing challenges are specific to its Santa Clara, California-based operations, the broader semiconductor industry also experienced a decline for the second consecutive day. This downturn was further exacerbated by weak employment data released on Friday, which heightened concerns about a potential slowdown in the U.S. economy.

Consequently, traders are now anticipating a more substantial half-percentage-point rate cut by the U.S. Federal Reserve in September, deviating from the previously expected 25-basis-point reduction.

Ryan Detrick, the chief market strategist at The Carson Group, mentioned that the enthusiasm surrounding AI and large cap technology is now more grounded. He emphasized that while the future remains promising, investors may have become overly excited. Detrick also pointed out the potential risks when everyone aligns on the same side of the market.

The decline in shares of companies that supply equipment to Intel and other manufacturers, such as Applied Materials, ASML Holding, and KLA Corp, by approximately 8% each, indicates investor apprehension regarding future investments in manufacturing infrastructure.

The PHLX chip Index also experienced a significant drop of 5.2%, resulting in a total loss of nearly 10% for the week.

Nvidia, a leading provider of AI processors, saw a decrease of close to 2%, marking a decline of more than 20% from its peak closing price on June 18.

Ross Mayfield, an investment strategy analyst at Baird, highlighted concerns about a potential economic downturn and lackluster quarterly reports from Amazon and Alphabet, which have raised uncertainties about the growth of AI investments.

Mayfield emphasized the need to assess whether the exponential growth in AI capital expenditures can be sustained, particularly in a weakening macroeconomic environment.

‘FORGOTTEN HORSEMAN’

Intel, a former industry leader in chip manufacturing, introduced the widely recognized “Intel Inside” logo during the 1980s and 1990s, which played a pivotal role in marketing personal computers. As part of the prominent technology companies known as the Four Horsemen of the dotcom era, alongside Cisco Systems, Microsoft, and Dell, Intel’s market valuation peaked at approximately $500 billion in 2000. However, the company subsequently experienced a decline and has not fully regained its previous market position.

While it maintained its dominance in powerful PC chips, the company was taken by surprise by the emergence of Apple's iPhone in 2007 and other mobile devices that required processors with lower power consumption and lower costs.

Currently valued at around $91 billion, Intel's market worth is less than 5% of Nvidia and approximately 40% of Advanced Micro Devices, two PC chip manufacturers that it had overshadowed for many years until recently.

Michael Schulman, the chief investment officer of Running Point Capital, stated, "Intel has been somewhat overlooked in the technology sector over the past couple of decades, failing to surpass its highs from the year 2000 and facing challenges in restoring earnings to pre-AI revolution levels."

Intel's server chip business has been struggling for years as companies focus on investing in AI chips, where Nvidia has taken the lead. To regain its competitive edge, Intel plans to invest $100 billion in building and expanding factories across four U.S. states, with the help of $19.5 billion in federal grants and loans. The company assured investors of its commitment to these plans.

Intel's strategy relies on attracting other companies to use its manufacturing services, but analysts believe it could take years to revitalize the business. This effort is currently driving up Intel's costs and putting pressure on its profit margins.

The company's unsecured bonds, with a 5.15% coupon due in 2024, were trading 20 basis points wider on Friday compared to other companies' bonds. Similarly, its 5.6% unsecured bonds due in 2054 also widened by 17 basis points.

The recent earnings report has led to higher trading volume for Intel's bonds, according to bond market participants, which is affecting bond trading.

Dave Novosel, senior investment analyst at corporate bond research firm Gimme Credit, noted that Intel may need to return to the market for a small amount of debt.