Intel‘s (NASDAQ: INTC) second-quarter earnings report issued July 28 was a disaster by any measure. The company reported dramatic misses on revenue and earnings and significantly lowered its outlook for the rest of 2022.
Not surprisingly, Intel stock plunged following this news. However, Intel is in the midst of a turnaround strategy with a plan to spend tens of billions on new foundries and attempt to retake the technical lead. Given these plans, the question for investors is whether they should try to take advantage of this lower stock price.
For the second quarter of 2022, revenue came in at $15.3 billion, a 22% drop from year-ago levels. This was far short of the $17.9 billion analysts estimated.
And to add insult to injury, the cost of both sales and operating expenses surged by double digits during this period. This led to a loss of $454 million, or $0.11 per share, well short of the $0.69 in profit forecast by analysts.
Such a dramatic miss has affected its outlook for 2022. Intel now believes it will earn between $65 billion and $68 billion in revenue for the year. Just three months ago, Intel had predicted $76 billion in revenue for 2022.
On the Q2 2022 earnings call, Intel blamed this performance on a variety of factors. This included supply chain challenges, COVID-19 lockdowns in China, and even its own execution. Investors did not respond well, and Intel stock dropped 8% following the announcement. Consequently, its stock has dropped by around 35% from its high in January.
That decline has taken its price-to-earnings (P/E) ratio to around 6, dramatically lower than the earnings multiples for Taiwan Semiconductor, Advanced Micro Devices, or Nvidia. Nonetheless, with this dramatic miss and the lack of growth, Intel struggles to gain investor interest despite this low multiple.
Why this might be good for Intel anyway
However, challenges like its falling revenue are why Intel hired a new CEO and changed its long-term strategy. With Pat Gelsinger now at the helm, Intel has set out on a path to regain its technical lead. It will apply its production capacity to build a foundry business that aims to compete with Taiwan Semiconductor and Samsung and plans to spend tens of billions to build new foundries in both the U.S. and Europe. Furthermore, unlike his predecessor, Gelsinger is an engineer who understands the product and what it might take to help Intel regain its technical lead.
Moreover, chip development cycles take three to five years. Gelsinger has held the job for only 18 months, so the jury is still out on whether his strategy can succeed.
Additionally, both the House and Senate have passed the $52 billion CHIPS Act. Intel’s foundry footprint and expansion plans will probably make it a major beneficiary of these subsidies. And given the push to bring chip manufacturing back to the U.S., Intel will likely benefit long-term once the planned foundries become operational.
Should I buy Intel?
As for whether investors should buy Intel, the answer is no, or, more precisely, not right now. Gelsinger started this process when he took over in early 2021, so the three-to-five-year chip cycle has not yet played out. Moreover, as this earnings miss shows, Intel’s strategy has yet to show any signs of success.
However, due to subsidies and its massive foundry investments, Intel will likely succeed at least to some degree. At a P/E ratio of 6, the semiconductor stock could become a great buy once it has a proven catalyst.
Will Healy has positions in Advanced Micro Devices. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: long January 2023 $57.50 calls on Intel and short January 2023 $57.50 puts on Intel. The Motley Fool has a disclosure policy.