Why Intel (INTC) Shares Are Trading Lower Today

Radek Strnad /
2024/03/05 2:11 pm EST

What Happened:

Shares of computer processor maker Intel (NASDAQ:INTC) fell 5.1% in the afternoon session after stocks declined, with investors likely taking profits. The Nasdaq fell 1.6%, while the S&P 500 was down 0.9%. Some of the big tech names felt the heat, with Tesla, Netflix, and Microsoft all declining by more than 2%. Notably, iPhone manufacturer Apple was also down nearly 3% following a research report by Counterpoint that suggested a decline in iPhone sales in China in the first six weeks of the year. The weak demand report could signal that the purchasing power of consumers in the region is weakening. Otherwise, we have found no other fundamental or rate-related reasons explaining the broad market decline. 

It is a week packed with information for investors to digest. Fed Chair Jerome Powell will give updates to Congress on March 6th and 7th, 2024, about the current monetary outlook, recent policy actions, and progress toward bringing inflation back down. Finally, on March 8th, the Bureau of Labor Statistics will report nonfarm payrolls for the month of February. 

The insight gleaned from the economic data and updates during the week could inform the market's outlook on equities and other assets for better or worse. Investors expect the Fed to begin cutting rates this year, with the expectation of the first rate cut as early as the first half of the year. 

As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Intel? Access our full analysis report here, it's free.

What is the market telling us:

Intel's shares are somewhat volatile and over the last year have had 12 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The biggest move we wrote about over the last year was about one month ago, when the stock dropped 12.9% on the news that the company reported fourth quarter earnings results and provided revenue and non-GAAP EPS guidance below expectations. Intel attributed the weak guidance to "discrete headwinds" that affected some of its business segments, including Mobileye, PSG (Programmable Solutions Group), as well as business exits. However, the company expects the challenges to be temporary and guided for sequential and year-on-year growth in revenue and EPS for each quarter of FY'24. 

On the other hand, revenue and EPS exceeded expectations during the quarter. Gross margin also improved, and the inventory level shrunk. Overall, the results could have been better, with the weak outlook likely to raise concerns among investors. 

Following the results, the company received a double rating downgrade, suggesting the market needs to be clearer about Intel's AI strategy as Wall Street analysts anticipate new stocks will benefit from the growing AI revolution in 2024. Needham analyst Quinn Bolton lowered the stock's rating from Buy to Hold, adding, "We expect AI to remain the spending priority in the data center for the next several quarters...To that end, dollars will continue moving away from Intel's core competency." Similarly, Summit Insights Group revised its rating from Buy to Hold, echoing a similar sentiment as it expects "More bumpy rides with AI materially impacting Intel's traditional data center segment."

Intel is down 10.1% since the beginning of the year, and at $42.96 per share it is trading 15.4% below its 52-week high of $50.76 from December 2023. Investors who bought $1,000 worth of Intel's shares 5 years ago would now be looking at an investment worth $800.76.

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