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Intel stock (NASDAQ:INTC) is synonymous with the semiconductor industry. Their chips power everything, from laptops and desktops, to data centers and immersive gaming experiences.
Once the undisputed king of the semiconductor domain, the company is experiencing major setbacks that challenge its near term growth prospects. This includes the company’s large operating losses, use of debt, and declining margins. Right now, their valuation doesn’t make sense and investors will be better off picking other AI chip stocks in 2024.
Colossal Losses at Foundry Division
Intel’s recent foray into the foundry business has turned into a financial sinkhole. The company’s ambitions to compete with the likes of Taiwan Semiconductor (NASDAQ:TSMC) have been met with harsh realities.
In 2023, Intel stock reported that their foundry division posted a staggering $7 billion operating loss, signaling continued struggles. The reasons for these losses are due to a multitude of reasons. One being the company facing stiff competition from industry leaders with more advanced and streamlined chip-making processes.
Moreover, Intel has had to invest heavily in infrastructure and they’ve been using debt to do so. The company expects the business to turn around and report operating profit in and around 2030. This is bad news for investors who are betting on Intel’s turnaround as a pure play AI chip company in 2024.
Growing Competition in AI Chip Market
Artificial intelligence is rapidly transforming industries, and the demand for AI chips is growing rapidly. While Intel stock has historically dominated the PC Processor market, its player catch up in the AI chip arena.
FAANG stocks like Nvidia (NASDAQ:NVDA) have already seized the initiative in developing robust chips specifically tailored to AI workloads. Additionally, their attempts to enter the AI chip market has been met with mixed reviews from Wall Street.
Intel’s new Gaudi3 accelerator is said to be capable of training specific LLMs 50% faster than Nvidia’s flagship H100 processor. However, this is merely speculation and their chips trail Nvidia’s dominance, especially in the data center segment.
The rapid pace and acceleration of next-generation AI chips means that any initial advantage can be erased quickly. It also doesn’t help that the company is likely to continue losing money for the next several years to fund its growth.
Intel Stock: Questionable Valuation and Growing Debt Problem
Intel stock has a questionable valuation, especially when you consider the headwinds they will face in the next few years. Even after its recent stock decline, Intel’s shares command a relatively high price compared to its earnings and projected growth.
Investors are essentially paying a premium for the hope that their AI strategy will pay off. Furthermore, the company has a looming debt problem. Intel’s long term debt increased by 24.66% to $46.97 billion from the 2022 levels. The company is currently burning through a ton of cash, and there is no sign that it will slow down anytime soon.
On the date of publication, Terel Miles did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.