Shares of Intel (INTC 9.25%) were a massive disappointment in 2024. Multiple missteps culminated with the surprise retirement of CEO Pat Gelsinger late last year, and the company is now led by interim co-CEOs without a clear strategy. Investors are right to be skeptical of an Intel turnaround.
While management could start to turn things around this year, there are multiple major risks that could further derail the stock.
Everything is riding on Intel 18A
Intel 18A is the fifth and final process node in Intel’s five-nodes-in-four-years manufacturing plan. The company has laid out its post-18A road map, but Intel 18A is likely to make or break the company’s foundry business.
The chipmaker has made progress catching up with Taiwan Semiconductor Manufacturing in terms of manufacturing technology over the past few years, and Intel 18A is supposed to push it back into the lead, or at the very least get it back to parity. It features a new type of transistor and will be the first process available to use backside power delivery, a feature that can meaningfully improve performance and efficiency.
A handful of major buyers for Intel 18A have been announced, but the pace of customer wins has been slow. To justify the massive investments necessary to bring Intel 18A up to volume production, the company is going to need to score more customer wins sooner rather than later. With interim co-CEOs running things right now, potential customers may not be too keen to commit to it for manufacturing.
Beyond the foundry business, multiple upcoming product lines are set to use Intel 18A for manufacturing. Any delay or issues with the process would not only be a setback for the foundry but also derail products that the company will need to get right to win back market share. Those include Clearwater Forest in server central processing units (CPUs) and Panther Lake in the PC CPU market.
If Intel 18A fails, the comeback will be in serious jeopardy.
Stumbles in the PC market
Intel is facing two distinct problems in the desktop CPU market. First, the company’s previous-generation Raptor Lake chips, while powerful, suffered from embarrassing stability issues that forced it to extend warranties.
Second, Arrow Lake, the company’s latest desktop chips, perform worse than Raptor Lake and competing CPUs from AMD in gaming workloads. While Arrow Lake does well in other areas, poor gaming performance is an albatross around its neck.
Even after a series of software fixes meant to improve Arrow Lake’s gaming performance, the new chips are still unappealing for PC gamers. The website Tom’s Hardware found that the fixes actually make Arrow Lake relatively less competitive because they also improve performance for Intel’s older chips.
While gaming represents only a portion of the desktop CPU market, the bad press around Arrow Lake is a real problem that isn’t going to go away. That spells trouble for Intel’s client computing segment.
Falling behind in AI
On paper, the company’s Gaudi line of artificial intelligence (AI) accelerators offers an attractive value proposition. Unfortunately, immature software has hindered adoption. Intel had originally set a goal of selling $500 million worth of AI accelerators in 2024, a paltry number compared to the overall size of the market. It managed to fall short of that target.
Intel’s AI accelerator road map is complicated, with the company planning to essentially merge Gaudi with its data center GPUs into a new product line that’s a traditional GPU that integrates Gaudi’s features. Long story short, 2025 isn’t likely to be a great year for its AI chip business. AMD is doing much better than Intel in this area, so there are really no excuses.
AI accelerators could easily be a multibillion-dollar business for Intel if not for the company’s poor execution. As it faces challenges on multiple fronts, the lack of a sizable AI accelerator business could drag down the stock as investors focus on other AI plays.
Is Intel stock a buy?
While Intel is going through an unprecedented crisis, it could still make sense to bet on a turnaround. Its manufacturing assets are valuable, and the company remains the only U.S.-based advanced logic semiconductor manufacturer. The stock currently trades below book value, an indication that investors are incredibly pessimistic about the prospects of the once-untouchable semiconductor giant.
If the Intel 18A process is delivered on time and lives up to its potential, a comeback could begin in earnest as early as this year. If, however, the all-important process node disappoints in any way, Intel stock could be stuck in the doldrums for the foreseeable future.
Timothy Green has positions in Intel. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: short February 2025 $27 calls on Intel. The Motley Fool has a disclosure policy.