Intel’s Battered Bulls Find Hopes Dashed Again After Huawei Ban

(Bloomberg) -- Intel Corp bulls just cannot catch a break in 2024.
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After a 90% rally in its shares last year, the chipmaker hit another snag in its years-long effort to turn around its operations as it said a US ban on chip exports to Huawei Technologies Co. would pressure revenue. The statement, which knocked the stock to its weakest close in almost a year, was the latest in a seemingly endless drumbeat of bad news, testing the patience of those who hope Chief Executive Officer Pat Gelsinger can deliver on his vision.
Gelsinger’s efforts to turn Intel into a foundry — a company that sells outsourced chip production to outside customers — is proving an uphill slog for the firm. A torrid stock rally in 2023 on the back of those turnaround hopes has turned into a 40% slump this year, as investors come to grips with how expensive the strategy will be and how long it may take.
Shares were down 0.4% on Thursday.
The question shareholders might be asking: why punt on a costly and risky turnaround at Intel when rival Nvidia Corp. is already cashing in booming demand for the chips used in artificial intelligence computing?
“There’s no reason to own it in the short-term, since short-term investors have to deal with capex outlays, issues with the foundry business, and a lack of meaningful data-center growth,” said Daniel Newman, chief executive officer of The Futurum Group. “Intel is playing the long game, and I admire the steadfastness, but it needs to do a lot right over time. If you’re going to own it, your horizon needs to be at least three to five years.”
This week’s bad news on chip exports followed a 30% share-price tumble in April, Intel’s biggest one-month selloff in more than 20 years. It was triggered initially by the company posting a disappointing outlook for factory operations, then a weak forecast. Its free cash flow in the most recent fiscal year was a negative $14.3 billion and is seen improving only marginally this year to negative $10.4 billion.
The April selloff put its performance toward the bottom of the Philadelphia Stock Exchange Semiconductor Index this year, with only Wolfspeed Inc. faring worse. The industry benchmark has gained 14%, largely due to an 82% surge in Nvidia, which has delivered a steady steam of blowout reports and forecasts.