Intel(NASDAQ: INTC) was once considered a stable long-term investment on the semiconductor market. But over the past 10 years, the chipmaker's stock declined 26%. Even with reinvested dividends, it delivered a negative total return of 4%.
During the same period, the S&P 500 rallied 192% and generated a total return of 250%. AMD's (NASDAQ: AMD) stock soared a whopping 5,220%. Let's see why Intel's stock withered -- and if it has the potential to bounce back and generate millionaire-making gains in the future.
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How Intel lost its way
Intel is still the world's largest producer of x86 central processing units (CPUs) for PCs and servers. But according to PassMark Software, Intel's share of the x86 CPU market shrank from 82.2% to 61% between the fourth quarters of 2016 and 2024. AMD's share doubled from 17.8% to 35.7%.
Intel ceded the market to AMD as it grappled with production delays, chip shortages, and shifting strategies under three different CEOs. Intel manufactures most of its chips at its first-party foundries, but AMD outsources all of its production to third-party foundries like TSMC and Samsung.
Over the past few years, Intel fell behind TSMC and Samsung in the "process race" to manufacture smaller, denser, and more power-efficient chips. Intel's problems started with a difficult transition from 14nm to 10nm chips (2017-2020), then worsened with even more delays in its subsequent transition to 7nm chips (2020-2023). As Intel tripped over its own feet, AMD developed a new generation of Ryzen CPUs for PCs and Epyc CPUs for servers. TSMC pumped out those chips on schedule, and many of Intel's longtime customers started to pivot toward AMD's chips instead.
Intel also failed to gain a foothold in the mobile chip market, and its CPUs became less relevant than Nvidia's graphics processing units (GPUs) in the booming AI market. Missing those two key technological shifts indicated Intel had lost its edge in the chipmaking market.
Intel faces a long uphill battle
Pat Gelsinger, who became Intel's CEO in 2021, initially dismissed the idea that it needed to follow AMD's lead, divest its foundries, and become a "fabless" chipmaker. Instead, Gelsinger doubled down on expanding Intel's foundries, chased government subsidies, and claimed it could catch TSMC by 2025.
But at the same time, Intel quietly outsourced some of its production to TSMC to alleviate the pressure on its first-party foundries. Even with that assistance, Intel struggled to ramp up its production of its newest Meteor Lake chips over the past year as development of new AI-driven CPUs compressed its gross margins.
As Intel grappled with all of those problems, it executed big layoffs, divested non-core businesses and investments, and even suspended its dividend in August. In September, the company announced it would spin off its foundry unit into an independent subsidiary and sell part of Altera, the programmable chipmaker it acquired in 2015. All those moves suggested that Intel was shrinking its business to survive instead of trying to surpass TSMC and Samsung.
What's next for Intel?
From 2018 to 2023, Intel's annual revenue fell from $70.8 billion to $54.2 billion as its earnings per share (EPS) plunged from $4.48 to $0.40. Those declines can be attributed to its market share losses to AMD, the softness of the PC market, and the company's ongoing divestments.
But from 2023 to 2026, analysts expect Intel's revenue and EPS to grow at a compound annual growth rate (CAGR) of 4% and 29%, respectively. That recovery could be driven by the stabilization of the PC market, rising chip yields, and its sweeping efforts to reduce expenses by more than $10 billion in 2025.
Is Intel a millionaire-maker stock?
At $25, Intel already trades at 29 times its projected earnings for 2026. AMD, which is growing a lot faster and faces fewer headwinds, trades at 31 times its 2026 earnings. With those valuations, it's hard to see why anyone would pick Intel over AMD right now.
In a best-case scenario, Intel's sales and profits could stabilize as it rolls out new chips, its cash flow could stay positive, and it could reinstate its dividend. If the company checks those boxes, it could become a stable blue chip dividend play again. However, I don't see Intel's stock doubling or tripling over the next few years. It's clearly a mature tech stock that faces an existential crisis -- not a hypergrowth company that can deliver millionaire-maker gains over the next decade.
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
