Why are Intel stocks plummeting while other chip stocks are soaring?

Looking at the disparity between Intel and Nvidia, I find it quite sad. While Nvidia, under the leadership of Jensen Huang, is the best-performing stock in the S&P 500 with a gain of over 114% year-to-date, Intel is the biggest loser, losing more than 60% of its market capitalization. Intel's decline is not a new story, but this year has truly been a disaster, especially after the second quarter report that led to the stock's worst day in the past 50 years.

Currently, Intel is trading below 20 USD, with a market capitalization of only about 84 billion USD. It's a pity for a giant that once was!

Why are Intel stocks so low?

Typically, stocks with low prices are due to a high number of shares outstanding, poor performance, or due to a split. For Intel, the last split was in 2000, so that's not the reason. In contrast, Nvidia just completed a 10:1 split after a rapid price increase.

Intel executed four 2-for-1 stock splits between 1995 and 2000 during the dot-com bubble. The highest point of Intel was $75.81 on August 23, 2000, and now it is only trading at a quarter of that time. It is dismal for investors to receive nothing but dividends - which have now also been suspended after a massive loss in Q2.

Compare market capitalization with other chip companies

The market capitalization of Intel is only about 85 billion USD, while Nvidia is at 2.6 trillion USD. AMD has reached over 215 billion USD, while TSMC - the competitor that Intel wants to challenge in the foundry segment - has a market capitalization of over 700 billion USD.

It is noteworthy that Intel's revenue in the past 12 months reached 55.12 billion USD, while Nvidia, TSMC, and AMD were 77.7 billion, 74.97 billion, and 23.27 billion USD, respectively. Intel's revenue in 2023 decreased by nearly 25% compared to 2019, while net profit dropped by 79% to 1.7 billion USD. The foundry segment alone incurred a loss of up to 7 billion USD.

Low valuation reflects pessimistic sentiment

Intel's P/S ratio is only 1.57x, while AMD and Nvidia are 7.4x and 19.6x respectively. Intel's P/E ratio stands at 52.6x, higher than Nvidia and AMD, but this is due to extremely low profit expectations - analysts forecast an EPS of -0.39 USD this year.

In summary, declining revenue, low profits, and low valuation are the reasons why Intel's stock has plummeted.

How did Intel decline?

Intel was once the largest chip manufacturer in the world since 1992, but this position weakened as the chip manufacturing industry gradually shifted to Asia.

Intel has missed many opportunities over the years, including the smartphone revolution. Most recently, Intel - like many other chip companies - lags far behind Nvidia, a company that has fully capitalized on the AI boom.

Currently, Intel is fighting to survive as companies like AMD and Nvidia are encroaching on Intel's market share even in the personal computer market - their core area.

Many have compared Intel to other fallen giants like Nokia, Kodak, and Blackberry. While I believe Intel is not yet at such a dire level, CEO Pat Gelsinger is facing a huge challenge in reviving this iconic American business.

Looking at how Intel is struggling, I can't help but wonder if they can turn things around, or if they will become another textbook example of the collapse of a tech empire?