Is Intel Stock a Buy Now?

It's been a tough year for Intel (NASDAQ: INTC). Its stock price has been essentially cut in half since Jan. 1 and it was booted out of the Dow Jones Industrial Average index in November. To add insult to injury, the company Intel tried to buy in 2005, Nvidia, has gone on to become the second-largest company in the world (based on market cap) and replaced it in the Dow.

But a new year is just around the corner, and with it comes the potential for change. Is Intel poised to rebound in 2025?

Intel's struggles accelerated in 2024

A quick look at Intel's Q3 numbers shows why the stock has been struggling. The chipmaker saw a 6% year-over-year decline in sales while flipping from adjusted earnings per share (EPS) of $0.41 last year to a per-share loss of $0.46 this year. The semiconductor company's biggest issue is its third-party foundry business, which it launched in 2021 to help drive growth. Instead, it has been piling up losses.

In Q3, its foundry business saw revenue decline by 8% year over year to $4.4 billion, while the division's operating losses ballooned to $5.8 billion from $1.8 billion a year ago. The results included a $3.1 billion impairment charge. But even without the impairment, the loss still would have jumped to $2.7 billion.

Moving forward, the company is working to turn its foundry business into an independent subsidiary, which it thinks will help better serve customers and allow for outside funding. It could also be a precursor to the company eventually looking to spin off the business.

Intel expects the foundry business's operating loss to improve next year as it moves to new nodes with better cost structures and realizes cost savings from its restructuring plans. However, the business got some bad potential news when The New York Times reported that the Biden administration was looking to reduce the $8.5 billion CHIPs Act grant the company was supposed to receive, while awarding rival Taiwan Semiconductor Manufacturing a $6.6 billion grant to build foundries in the U.S. It was revealed on Tuesday that Intel will actually get $7.86 billion. The slightly lower amount was on top of the $3.3 billion Intel has already been awarded through a Department of Defense contract that used CHIPs Act funding.

Outside of its foundry business, Intel's other businesses have been a mixed bag. On the positive front, its data center and artificial intelligence (AI) segment performed well last quarter, with revenue increasing 9% year over year to $3.3 billion. This is well below the growth of most companies in the data center space, and the company said its Gaudi 3 AI accelerator would not meet 2024 revenue targets.

Meanwhile, after seeing strong results from its client computing group in the first half of the year when it posted 31% revenue growth in Q1 and 9% revenue growth in Q2, the segment saw revenue decline in Q3 by 7%. Moving ahead, though, the company is looking for its Intel Core Ultra 200V Series processors, formerly called Lunar Lake, to drive its AI PC business, while its new Arrow Lake will power desktop revenue growth. The company will launch its first central processing unit (CPU) based on its new 18A technology, Panther Lake, in the second half of next year.

Intel's other businesses have also struggled. Its Altera subsidiary saw revenue plunge 44% year over year, although it was up 14% sequentially and turned a small operating profit. The company is looking to spin off the business in an initial public offering (IPO) in the future.

Meanwhile, the company's Mobileye subsidiary, which is involved in chips for autonomous driving, saw its revenue decline by 8%. The acquisitions of both companies have proven to be mistakes thus far.

Image source: Getty Images.

More valuable broken up

Intel appears to be on a path of breaking up the company, which would likely be good for investors.

While its core product business isn't lighting the world on fire, it's solid. This business is on pace to produce around $12.6 billion in operating income this year, which would equate to about $2.20 in earnings per share. (This assumes a 25% tax rate and 4.3 billion shares.) Placing between a 10x to 12x forward price-to-earnings ratio (P/E) on just the core business would equate to a $22 to $26 stock price.

While its foundry business has struggled, Intel has real physical assets. It carried $104 billion in physical assets on its balance sheet and spent about $68.5 billion in capital expenditures (capex) since the end of 2021, mostly going toward this business segment. Using just the capex numbers, we can value Intel's foundry business, given how much it has spent on foundry assets.

However, the company does carry about $26 billion in net debt, which we can assign to this business, as well. That would value its foundry business minus debt at about $10 per share.

Its nearly 88% stake in Mobileye, meanwhile, is worth about $12.8 billion, or about $3 per Intel share. Its Altera business has some value, as well.

Altogether, a broken-up Intel could be worth between $35 to $40 a share, which would represent significant upside from current levels. With the company seemingly taking steps to split some of its business off, it looks like Intel could represent a good value at current levels with the stock set up to see a rebound in 2025.

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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intel, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Mobileye Global and recommends the following options: short February 2025 $27 calls on Intel. The Motley Fool has a disclosure policy.