Analysts warn of 'pain ahead' for Intel

Yahoo Finance’s Myles Udland and Brian Sozzi discuss the road ahead for Intel.

Video transcript

MYLES UDLAND: All right, welcome back to Yahoo Finance Live. Sozzi, you are taking a look at shares of Intel today, coming off of a downgrade from the folks over at Raymond James. Intel has had an interesting last couple of months here. Pat Gelsinger now in as the company's CEO. And we've really seen some enthusiasm, as we can see in the year-to-date chart, around the story for Intel. Talk us through what the commentary is today.

BRIAN SOZZI: Yeah, Myles, Intel shares are up about 22% since Pat Gelsinger was announced as Intel's next CEO on January 13. So, a lot of optimism on his leadership. And Raymond James is stepping in here-- Chris Caso is the analyst at Raymond James-- saying, uh-uh, no go, downgrading the stock to an underperform from market perform, really, for two reasons. First, it says Intel won't reach its goal of opening new foundries and making chips for other companies.

And then, to that point, point number two is that Intel will continue to see pain financially as it invest billions of dollars in CapEx and other costs to help build out their-- just build out more internal manufacturing capacity to address the chip shortage. But I do want to remind people what exactly Intel is, in fact, spending $20 billion on. Here's a clip from my chat with Intel CEO Pat Gelsinger just a couple of weeks ago.

PAT GELSINGER: When we think about the world situation today, there's an extraordinary demand for semiconductors, right? As we've seen, basically, the world is becoming more digital. Every aspect of that runs on semiconductors. And then COVID put us into a higher gear or has just accelerated remote work, remote education, telemedicine, automotive. All of these are now seeing the shortages of semiconductors. So the world needs more of these capabilities.

Also, the world wants a more balanced supply chain. There's an extraordinary concentration in Asia, right? So, US and Europe. And we're one of the few companies that can step into that.

BRIAN SOZZI: And fairly common sense here, Myles, chip shortage, you have to increase production, and Intel is going to spend the money to do it, which, again, I don't think Gelsinger is under-- you know, that this is going to be an easy job turning the company around. But he's an optimistic guy. He gets up really early in the morning. He's working hard. He's trying to turn the company around.

But I will note this, too. This is not anything new, an analyst coming out negative on Intel. Out of all the analysts on the sell side that cover Intel, the stock already has eight sell ratings or underperforms here. I mean, just look at the multiples on the stock. Intel trading at about 15 times forward earnings. AMD, 41 times. Nvidia, 43 times. So, AMD and Nvidia, a lot of optimism there. If Intel could just get past this investment cycle, maybe, maybe it still-- maybe it fetches a multiple like an AMD or Nvidia over the next couple of years.

MYLES UDLAND: Yeah, it's just interesting when any of these names come up because it's like, the same story in the last four years has gotten remixed five different ways. And the ultimate answer is, we like Nvidia more than we like Intel. We like AMD more than we like Intel. We like Micron more than we like Intel or Qualcomm, whatever it is. I mean, it seems that we sort of end up coming back to Taiwan Semi, Micron, Nvidia, AMD, even though, as we discuss in the show all the time, everybody this side of the Mississippi knows there's a bull case for semiconductors and chips and anything adjacent to that. So, Intel has at least caught on a bid on that side of it.

BRIAN SOZZI: Yeah, Intel has been, I would say, a whipping boy on Wall Street. They've taken a lot of beatings the past year and a half, even though they have put up some pretty good performances. You know, they have Mobileye. That division is doing pretty well. But again, Gelsinger was brought in to turn the company around. And it's going to take some time to do it. And ultimately, he's probably the right guy to do it.

MYLES UDLAND: Yeah. Certainly a very interesting story to follow. Just a storied name for a number of reasons, not the least of which is the role that Intel as a stock played back some 20 years ago and thinking about where Pat Gelsinger, another veteran of the Valley with a lot of success under his belt, can take the company that is at a mature stage, but certainly trying to to reaccelerate some of those growth engines, get people excited about Intel once a--