Intel Corp. shares plummeted 13% in the week ending December 13th, marking their worst performance in three months, following the abrupt departure of CEO Pat Gelsinger. This latest setback compounds an already challenging year for the chipmaker, with its stock down 58% year-to-date, potentially its worst annual decline since at least 1983. The sudden leadership change has left investors questioning the company’s future direction and strategic vision.
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Investor Uncertainty Fuels Sell-Off Following Gelsinger’s Exit
The appointment of two interim co-CEOs has done little to quell investor concerns. Kim Forrest, chief investment officer at Bokeh Capital Partners, expressed skepticism, highlighting the lack of clear leadership as a key driver of the sell-off. While Gelsinger’s turnaround efforts were perceived as slow, his departure leaves a void in strategic direction, raising questions about Intel’s future trajectory.
Interim co-CEO David Zinsner’s attempt to reassure investors at a UBS conference proved ineffective. His reaffirmation of existing guidance and commitment to controlled capital spending failed to halt the stock’s decline. Lynx analysts criticized the presentation as lacking substance and failing to provide a clear path forward.
Illustrative example of a stock chart depicting a decline.
Intel’s Struggles in AI and Foundry Business Exacerbate Concerns
Gelsinger’s exit caps a year of challenges for Intel. The company has struggled to capitalize on the booming artificial intelligence accelerator market and its costly and slow pivot to chip manufacturing for other companies has further strained investor confidence. A disastrous earnings report in the summer triggered widespread analyst downgrades, solidifying Intel’s position as the worst-performing stock in the Philadelphia Semiconductor Index this year.
Currently, only seven out of 52 analysts tracked by Bloomberg recommend buying Intel shares, reflecting a consensus rating of 2.96 out of five, the lowest since March 2023. This widespread lack of confidence underscores the depth of the challenges facing the company.
Search for New CEO and Potential Strategic Shifts
The search for a permanent CEO is underway, but finding a suitable replacement for Gelsinger is proving difficult. Hendi Susanto, a portfolio manager at Gabelli Funds, emphasized the challenge of finding a leader with the necessary manufacturing background and technical expertise to steer Intel’s complex turnaround.
Potential candidates, including Marvell Technology Inc.’s Matt Murphy and former Cadence Design Systems Inc. CEO Lip-Bu Tan, reportedly lack the crucial combination of manufacturing experience, technical knowledge, and Intel-specific expertise required for the role, according to Citi analysts. While the recent addition of semiconductor industry veterans Steve Sanghi and Eric Meurice to Intel’s board was welcomed, the leadership vacuum remains a significant concern.
Illustrative example of a semiconductor chip.
Intel’s Future: Breakup, Deals, or Continued Struggle?
Gelsinger’s departure raises the possibility of significant strategic shifts, including a potential breakup of the company or various deal scenarios. However, without clarity on leadership and future direction, Intel’s stock is expected to remain under pressure. Despite its decline, the stock’s valuation remains relatively high compared to its growth prospects, trading at about 24 times forward earnings, similar to the broader chip index. This contrasts sharply with high-growth companies like Nvidia Corp., which trades at a higher multiple but boasts significantly stronger revenue growth projections.
Thomas Martin, senior portfolio manager at Globalt Investments, highlighted the uncertainty surrounding Intel’s various businesses and their valuations. He cautioned that corporate turnarounds can be protracted and complex, particularly in the highly competitive chip industry. Intel’s future hinges on finding the right leadership and executing a successful turnaround strategy, a task that remains daunting given the current landscape.
