Investors' patience is running thin, and the profitability path is a key test for Intel's CEO

Intel's new CEO Lip-Bu Tan is facing his first critical test since taking office. Although he has only been at the helm of this troubled chip manufacturer for three months, investor patience has quickly worn thin.

With the earnings report approaching this Thursday, all market focus is on Lip-Bu Tan. In the first earnings call in April, he stated that it would take time to turn the company around. However, since he took office in March, Intel's stock has risen about 17%, which pales in comparison to the nearly 50% astonishing increase of its competitor Nvidia during the same period. This stark contrast has heightened investor anxiety.

The market's pessimistic expectations have already been reflected in pre-earnings forecasts. Wall Street analysts generally expect that Intel's second-quarter revenue will decline by 7% year-on-year to $11.9 billion, with a loss of 31 cents per share. Even more concerning for investors is the market's prediction that the company may not return to profitability or achieve revenue growth until mid-next year.

Joe Tigay, fund manager of Rational Equity Armor Fund, stated:

“I hope this report can provide some answers. Intel still has huge opportunities, but we have reduced some positions and shifted to other chip stocks.”

Wall Street's patience is running out, and Intel's profit outlook faces severe challenges

When Intel announced Lip-Bu Tan's appointment as CEO, investors were initially excited. However, as time has passed, the initial optimism has gradually cooled. Although Tan has implemented cost-cutting measures, he has yet to outline a clear new direction for the chip giant, which is struggling due to market share loss and massive factory expenses.

Investor impatience is most visibly reflected in the stock price performance differences between Intel and other chip stocks. Since Tan's appointment, Intel's stock has risen about 19%, far behind the industry leaders, with Nvidia's stock soaring nearly 50% and AMD surging 64% during the same period.

For Intel, the road to profitability is fraught with challenges; merely cutting costs is far from enough to convince the market. KC Rajkumar, an analyst at Lynx Equity Strategy, wrote in a research report:

“The upcoming earnings report is crucial for establishing a credible path to breakeven. But this requires more than just cost-cutting; revenue must also grow.”

Currently, Tan has committed to cutting about $2 billion in capital expenditures this year and significantly reducing operating expenses. However, so far, the company has only notified about 4,000 employees that their positions will be eliminated, which is just 4% of its total workforce. Wall Street generally believes this is still far from sufficient. The harsh reality is that analysts predict Intel will struggle to escape losses or achieve revenue growth for at least the next year

Dual Test of Artificial Intelligence and Market Share

The key to Intel's recovery lies in whether it can carve out a share from the wave of artificial intelligence infrastructure development—this may be the biggest opportunity in the history of the semiconductor industry. However, this market is currently dominated by NVIDIA, and Intel will face significant challenges in achieving breakthroughs.

In addition to competition in the AI field, investors are also focused on two core issues: Can Intel attract major customers to use its foundry, and can its self-developed chips regain lost market share? These two points are also important indicators of whether Tan can successfully turn the situation around.

From the overall sentiment on Wall Street, the market outlook for Intel is not optimistic. Among the 52 analysts covering Intel tracked by the media, only 4 have given a "buy" rating, while as many as 42 hold a "hold" rating, and another 6 recommend "sell."

The average 12-month target price given by analysts is $21.93, which implies a nearly 7% downside from its Wednesday closing price of $23.49. Bernstein analyst Stacy Rasgon summarized Intel's predicament in a report to clients on July 21 with a sharp question:

"Do Intel's performance numbers still matter at this point? Can new products reverse the decline in market share, or is it too late?"