Since the public release of ChatGPT on Nov. 30, 2022, companies such as Nvidia, Advanced Micro Devices, and Broadcom have generated share price returns well in excess of 100%.
The common theme among this small cohort is that each is a semiconductor stock. Considering chips are an integral pillar of generative AI development, it shouldn't come as a surprise that all of these companies have benefited greatly from artificial intelligence.
And yet in light of these bull runs, one chip stock hasn't fared so well. Since ChatGPT's launch, shares of Intel (INTC -0.65%) have declined by 22%.
Below, I'm going to outline three reasons I'm concerned about Intel and detail how these points may be impacting the stock.
Reason 1: Like throwing out a winning lottery ticket
There are countless examples of decision-making that winds up looking highly questionable in retrospect. As far as sports goes, the 2000 NFL draft comes to mind in a situation like this.
With pick No. 199 overall, the New England Patriots drafted Tom Brady. He was the seventh quarterback taken in that draft. Imagine being part of a sports ownership group and having six chances to draft Tom Brady and not do it. Despite his relatively unknown profile at the time, Brady went on to play 23 seasons in the NFL and compete in 10 Super Bowls (winning seven of them).
Intel's "Tom Brady" moment occurred back in 2017 when the company had an opportunity to invest in OpenAI during its early days but ended up passing.
According to Reuters, Intel's management didn't quite see the vision for generative AI. Considering how important Intel is for the chip industry and the role semiconductors are playing in AI development, learning that the company had a front-row seat to OpenAI and passed is equal parts shocking and disappointing.
In my eyes, investors have a right to be questioning Intel's ability to spot groundbreaking innovations and how the company can play a role.
Image source: Getty Images.
Reason 2: An unsatisfactory report card
Intel competes heavily with chip manufacturer Taiwan Semiconductor Manufacturing. However, Reuters published another stunning Intel report about a month ago highlighting a major setback to the company's fabrication process.
According to Reuters, Broadcom tapped Intel's Foundry process node, dubbed 18A, for chip manufacturing. Unfortunately, Intel did not meet Broadcom's quality standards -- leading investors to question Intel's capabilities compared to rivals such as Taiwan Semiconductor.
What could have been a big partnership for Intel looks to be on shaky ground. I don't think this bodes well for Intel, and could inspire others in need of chip fabrication to pass working with the company altogether.
Reason 3: Competition is coming
The last concern I have pertains to competition. Besides Nvidia and Advanced Micro Devices, the chip space is starting to witness more activity from external sources including Microsoft, Amazon, Meta Platforms, and Alphabet.
All of these companies are investing billions in IT infrastructure, and that includes custom-made chips. On the surface, this may look like an opportunity for Intel's Foundry business. But given Intel's visionary fumbles, its sub-optimal report card from Broadcom, and even Apple's continued distancing from the company, I have my doubts that Intel will be able to seize the moment as more GPUs hit the market.
The bottom line
I think of Intel as a hamster stuck on a wheel. The company has a decades-long reputation of being one of the most critical technological infrastructure companies in modern history. But it seems that Intel has been passed by new players, and I'm not getting the impression that the company is merely pacing itself for some breakout move in the future.
Unfortunately, I'm hard pressed to buy into much of a growth narrative here and would not be surprised to see the stock continue falling.
