Intel’s Troubles Run So Deep Even Bulls Are Wary

Jeran Wittenstein and Ian King
Thu, March 9, 2023 

(Bloomberg) -- With the most sell ratings in the Nasdaq 100 Stock Index, Intel Corp. is running ever lower on fans. Things have gotten so bad that even analysts brave enough to recommend buying are striking a cautious tone.

One of those, Srini Pajjuri at Raymond James, reasons that the chip designer’s “many problems” are unlikely to get much worse in the near term.

“We believe that the 2023 bar is low enough and expect the company to benefit from cyclical tailwinds and aggressive cost cuts,” Pajjuri wrote in a note last week, resuming coverage with an outperform recommendation.

Another advocate, Gus Richard at Northland Securities, is sticking to his outperform rating, even after saying that buying the stock in the wake of January’s ugly earnings report would likely make investors “physically ill.”

The root of Intel’s woes stems from ceding its leadership position in the crucial area of manufacturing technology to Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co. Those companies provide outsourced production to Intel’s competitors such as Advanced Micro Devices Inc., allowing rivals to field better products and grab market share.

Of the 45 analysts tracked by Bloomberg who cover Intel, just nine have a buy equivalent rating on the stock. That’s after the shares slumped 45% in the past 12 months, putting the Santa Clara, California-based company on the verge of falling below $100 billion in market value for the first time in a decade.

With 11 sell ratings, Intel is in a league of its own in the Nasdaq 100, where more than 95% of recommendations are buy or hold. Tesla Inc. and Cognizant Technology Solutions Corp., the companies with the second-highest number of sell ratings in the gauge, have just six each.

Rarer still is a company of Intel’s size that has more sell ratings than buys. Only two other Nasdaq 100 members — Cognizant and Fastenal Co. — are in this position, and their market values are less than a third as big.

Chief Executive Officer Pat Gelsinger is spending heavily on new plants and products to try to reassert Intel’s dominance, a plan that’s costing billions in increased spending as his company’s revenue and cash flow shrink. The consequences of that strategy were made evident last month when Intel slashed its dividend by 66% to the lowest level in 16 years.

Those analysts standing by the company are telling investors they’ll need to be patient and wait for new products built with better production techniques to come to the rescue. No one is predicting a near-term upswing.

For Daniel Morgan, senior portfolio manager at Synovus Trust Co., the current loathing of Intel is reminiscent of the aftermath of the dotcom bubble in 2002 that proved to be a nadir for the stock.

“We’re not going to abandon the stock,” said Morgan, whose firm holds more than 400,000 Intel shares. “We’re going to see if over time they can get through this tough space. Eventually you find a bottom when it gets so oversold and everyone gets too negative on it.”