Is Intel Stock a Buy?

Investors are taking a new look at Intel's (INTC -0.34%) stock after the appointment of Lip-Bu Tan as its new CEO. He takes over as Intel struggles to catch up to competitors and develop a foundry business that can compete with Taiwan Semiconductor Manufacturing and Samsung.

Due to Intel stock's decline and the company's failed attempts to catch up under previous management teams, its stock trades at levels it first reached in 1997. The question now is whether Intel can ignite a long-awaited recovery or whether Intel investors are destined for more stagnation amid the intense competition in the semiconductor industry.

Intel's new direction

Investors may not know what to make of the semiconductor stock as Tan takes the helm. The company allowed its industry lead to disappear in the 2010s. Then, ambitious plans under former CEO Pat Gelsinger to recapture its technical lead did not come to pass, and it is likely too early to tell if it can again become a top chip producer with its foundry business.

Admittedly, Tan looks to have the right resumé for this job. He has over 20 years of experience in the semiconductor and software industries. He also served as CEO of Cadence Design Systems from 2008 to 2021, a time when its stock rose nearly 2,700%.

It is too early to tell where Tan's leadership will take Intel. However, he plans to unload non-core assets and make Intel an "engineering-focused company." Additionally, he wants to deliver a competitive AI platform. After Intel's cancellation of the failed Falcon Shores AI accelerator, this new approach could serve as a welcome change.

Moreover, amid rumors of a spinoff of the foundry business, Tan reiterated his support for that enterprise. He seeks to attract two or three additional major customers and continues to collaborate with the U.S. government. Intel operates more foundries in the U.S. than any other company, making it likely to play a key role in a semiconductor manufacturing recovery.

Financial challenges

Still, Tan says the recovery "won't be easy," and the financials affirm its struggles. In 2024, revenue totaled $53 billion, down 2% from 2023 levels. At the same time, the cost of sales rose 10%, and the company dealt with a restructuring charge of almost $7 billion. That and a $8 billion tax bill led to a net loss of nearly $18.8 billion, far below the $1.7 billion profit in 2023.

The company's deterioration is likely shown best by its free cash flow. At a negative $2.2 billion, free cash flow improved from a negative $11.9 billion in 2023. However, to achieve that, Intel had to cut back the net purchases of property, plant, and equipment by more than half to $10.5 billion. That likely played a role in delaying the opening of its first Ohio foundry until 2030.

These deteriorating financials and struggles to develop competitive AI products led to the stock losing more than half its value over the last year. Furthermore, the falling profits have made a P/E ratio a meaningless measure of its valuation. Still, with the stock trading for just 1.8 times sales and a 4% discount to its book value, Intel's challenges are likely reflected by its share price.

Is Intel stock a buy?

Given the state of Intel, it is likely not a buy except as a speculative play. Indeed, Intel continues to generate considerable revenue, and its extensive foundry footprint could help it revive itself.

Nonetheless, with a lost technical lead and deteriorating financials, Tan faces a huge challenge in getting Intel back on track. Although that has made Intel stock a bargain, shareholders may have to wait a long time for a recovery if such an improvement occurs at all.

Ultimately, with Intel's uncertain path, it will probably have to show clear signs of technical advancement and win key contracts before a revival of the business and stock price can take hold.