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With the recent Intel earnings and quarterly guidance, Intel solidified itself as the worst-performing tech stock in the S&P 500, with a 36% decline year-to-date. While of course this may look disappointing, it is important not to lose sight of our investment thesis, which does not hinge on Intel's financial performance next quarter, but rather into 2025 and beyond.
Referring to posts I made in the past, I have long droned on about how difficult a spot Intel is in right now and will be until "5 Years 4 Nodes" project is complete. Huge Capex is required in building any successful foundry, and Intel is no exception. In Q124 Intel lost $2.5 billion in operating costs for its foundry business. Despite the fact that Intel has many qualifying customers for foundry space, no material profit has yet been made as majority of large customers were recently brought on and are vying for EUV fabrication on 18A or 14A nodes, which aren't yet in volume production. Intel recently purchased and installed the world's first high-NA EUV machine in its Oregon fab, signifying another step towards its reclamation of technological leadership. It is important to note however, that current Intel products are still on Intel 7 and Intel 4, the cutting edge of Intel's current offerings, such as Meteor Lake and Sapphire Rapids, are far from market-leading. It is absolutely no surprise that with the losses in Foundry Intel's guidance weren't pretty.
For anyone that tuned in, Intel's recent earnings remarks do not paint a picture for a company that's gasping for its final breath, but rather one that's executing a clear turnaround plan. "5 Years 4 Nodes" is currently in full swing with no sign of any delay or issues. We have Intel 3 being released in 2H2024 with volume production starting soon. The last of the 4 nodes, Intel 18A taped out last quarter and is slated for 2025. Intel's Gaudi 3 accelerator is competitive and signifies Intel's continuing investment and presence in the highly competitive AI field. Despite forecasting only 500M in revenue this year, this could become a highly lucrative direction if Intel's at all able to challenge Nvidia's dominance. From earnings call we also learnt that Intel's Meteor Lake is selling well, bottlenecked by supply and not demand. This is very good news indeed for such a substandard transitional product, and will allow Intel to sustain its current market share before it is properly able to compete with the likes of AMD and Qualcomm. For the foundry, we are looking at a longer time-frame of multiple years, however the CFO of Intel mentioned that Intel does expect 2024 to be a balance sheet trough before P&L starts to improve as EUV wafers start volume production.
All-in-all, for me, fundamentals for Intel have not changed, despite a change in sentiment. These are the moments where patience and discipline are most tested. For anyone looking to purchase Intel shares, enjoy the firesale!... Show More
Not investment advice. The author may have financial interests in the mentioned instruments.
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