Will Collapsing Intel Stock Get Kicked Out of the Dow?

While most large-cap semiconductor stocks have been on an absolute tear over the last 18 months, Intel (INTC) has trailed its peers by a wide margin. For instance, since the start of 2023, the VanEck Semiconductor ETF (SMH) has more than doubled investor returns, while INTC stock is down close to 30%. 

Intel’s underperformance is even more glaring if we look at a 10-year period. Since September 2014, the SMH ETF has returned over 700%, while INTC stock has lost close to 46% in market value. 

Intel continues to struggle amid rising competition from Nvidia (NVDA) and Advanced Micro Devices (AMD). Its falling revenue and cash flow forced the once-dominant chip maker to suspend its dividend and reduce its workforce by 15% following its Q2 earnings. 

Due to its significant underperformance, there is now rising speculation that Intel will be removed from the blue-chip Dow Jones Industrial Average ($DOWI). 

Intel Accounts for 0.03% of the DJIA

During the dot-com boom, Intel was among the first technology companies to join the widely followed Dow Jones Industrial Average benchmark. Today, it is the lowest-weighted stock in the DJIA, accounting for 0.31% of the index. While the broader S&P 500 Index ($SPX) is weighted by market cap, the DJIA's value is calculated based on the absolute share price of the 30 companies. 

Intel is the worst-performing company on the DJIA, down more than 62% in 2024. The drawdown in INTC stock means the company is now valued at a market cap of less than $100 billion for the first time in almost three decades. 

According to analysts, Nvidia or Texas Instruments (TXN) is most likely to replace Intel in the DJIA. 

Can Intel Stock Stage a Comeback?

Intel shares gained momentum late last month after a Bloomberg report stated that the company is discussing strategic options with investment bankers, including splitting its business segments and shelving factory expansion plans. The company has spent heavily to build a chip manufacturing foundry and compete with market leader Taiwan Semiconductor Manufacturing (TSM), so spinning off its foundry business from its core chip design business might help to improve Intel's business fundamentals and create shareholder value. 

During its Q2 earnings call, Intel announced a $10 billion cost-reduction plan and stated it would lower full-year capital expenditures by at least 20%. In the June quarter, Intel reported revenue of $12.83 billion and adjusted earnings per share of $0.02. Comparatively, analysts forecast the company to report revenue of $12.94 billion and earnings of $0.10 per share in Q2.

Revenue fell 1% year over year, and the company also announced a GAAP (generally accepted accounting principles) loss of $1.61 billion or $0.38 per share, compared to net income of $1.48 billion, or $0.35 per share, in the year-ago period. 

Intel explained that its decision to rapidly scale the production of Core Ultra PC chips, used to handle artificial intelligence (AI) workloads, drove losses in Q2. However, it expects the AI PC market to expand from less than 10% today to more than 50% in 2026. Moreover, Intel expects shipments of AI-powered PC chips to total more than 40 million units in 2024. 

While companies such as Nvidia and Broadcom(AVGO) are increasing their AI-based revenue at an enviable pace, Intel’s data center and AI business reported sales of $3.05 billion in Q2, down 3% year over year. 

In the current quarter, Intel forecasts revenue between $12.5 billion and $13.5 billion, with an adjusted net loss of $0.03 per share. Comparatively, Wall Street expected revenue at $14.35 billion and earnings of $0.31 per share in Q3. 

What's the Target Price for Intel Stock?

The average target price for INTC stock is $29.19, indicating an upside potential of over 50% from current levels. Out of the 36 analysts covering Intel stock, two recommend “strong buy,” one recommends “moderate buy,” 30 recommend “hold,” one recommends “moderate sell,” and two recommend “strong sell,” for an overall consensus of “hold.” 

It's evident that Intel is struggling to gain traction and is falling behind in the AI race. Intel's near-term prospects are uncertain, making it a high-risk investment right now.