In a move that sent ripples through Wall Street, Intel's (INTC) board reportedly forced out CEO Pat Gelsinger due to mounting frustration over the pace of the company's turnaround efforts. The announcement, officially billed as Gelsinger's retirement, underscores the complex challenges this tech giant is facing as it struggles to reclaim its former glory in an increasingly competitive chip market.

For investors, this leadership shake-up raises critical questions about Intel's future trajectory. With the stock down nearly 60% since Gelsinger resumed leadership, and the company grappling with fierce competition in the artificial intelligence (AI) chip race, the timing of this transition adds another layer of uncertainty to an already complicated investment narrative. 

The question isn't just whether Intel can execute its ambitious turnaround strategy – it's whether the company can adapt quickly enough to maintain relevance in a rapidly evolving technological landscape where both fabless and foundry competitors like Nvidia (NVDA) and Taiwan Semiconductor (TSM) continue to gain ground. 

Here, we'll take a closer look at the key factors investors should consider before making any decisions about Intel stock in this critical period of transition.

Intel's Financial Landscape

Intel (INTC) stock has been a significant underperformer in 2024, a fact underscored by its recent removal from the price-weighted Dow Jones Industrial Average ($DOWI). INTC has cratered 56% on a year-to-date basis, and the stock is down 68% from its 2020 highs.

In Q3 2024, Intel reported revenues of $13.28 billion, slightly exceeding analysts' expectations of $13 billion. Despite the top-line beat, the company posted a per-share loss of $0.46, significantly missing the consensus estimate for a slimmer loss of $0.03. This wide miss underscores ongoing challenges in profitability, even as Intel continues to generate substantial revenue. The ability to convert revenue into profit remains a critical area of concern.

Drilling down on segment performance, the Data Center and AI division (DCAI) experienced a promising 9% year-over-year growth, indicating strong demand for AI-driven solutions. Conversely, the Intel Foundry segment registered a dramatic 79% decline in revenue. Additionally, gross margin dropped from 42.5% to 15%, largely due to a shift towards lower-margin products.

The company reported a net loss of $18.6 billion for the nine months ending September 2024, compared to a much smaller loss of $1.28 billion in the same period last year. Nevertheless, operating cash flow remained strong at $5.1 billion, with adjusted free cash flow improving by an impressive 93%. This indicates that while Intel faces significant hurdles, its cash-generating capabilities could provide a buffer against ongoing financial pressures.

Notably, the company suspended its dividend at the start of Q4 2024—a decision aimed at further bolstering Intel's cash reserves amidst financial uncertainties. While this move may disappoint income-focused investors, it's likely a prudent step given Intel's current challenges.

Intel’s Strategic Crossroads 

The decision to replace Gelsinger with interim co-CEOs David Zinsner and Michelle Johnston Holthaus arguably reflects growing board impatience with the pace of the company's transformation. The company's weak position in the AI chip race stands out starkly, as it lags behind powerhouses like Nvidia, Amazon (AMZN), and Alphabet (GOOGL). This technology gap shows clearly in Intel's product timeline; its next-generation AI chip, Jaguar Shores, has barely made it to the drawing board, while the previous Falcon Shores hasn't even hit the market.

Notably, Intel just locked in a massive $7.86 billion funding package through the CHIPS Act, plus a $3 billion Defense Department contract for specialized chip manufacturing. This government backing, paired with a potential 25% investment tax credit, will fuel Intel's ambitious $100 billion expansion across facilities in Arizona, New Mexico, Ohio, and Oregon. However, it's worth noting that the federal funding could hamstring Intel's efforts to divest its money-burning foundry.

On the manufacturing front, Intel faces both headwinds and bright spots. The company is pushing ahead with its Intel 18A technology, set to roll out in 2025. This breakthrough includes cutting-edge features like RibbonFET and backside power delivery, and Microsoft's (MSFT) recent decision to produce chips using Intel 18A technology marks a major vote of confidence from a key player.

And in the AI arena, Intel has partnered with Amazon Web Services, signing a multi-year, multi-billion-dollar deal for custom Xeon 6 chips on Intel 3 and an AI fabric chip on Intel 18A. These partnerships, combined with Intel's advanced packaging capabilities and systems foundry approach, could help the company grab a foothold in the booming AI market, though it still faces fierce competition.

Wall Street's Cautious Take on INTC Amid Uncertainty

Management set an optimistic tone for Q4 2024, projecting revenue between $13.3 billion and $14.3 billion and adjusted EPS of $0.12. This guidance surpassed the Street's forecasts of $13.6 billion and $0.08, respectively.

However, analysts remain cautious on Intel stock overall. Out of 36 analysts offering recommendations, the overwhelming majority (30) suggest INTC is a “Hold.” The mean target price set by analysts stands at $26.55, suggesting a potential upside of about 27.6% from current levels. 

This consensus reflects a wait-and-see approach, acknowledging both Intel's challenges and its potential for recovery. 

Conclusion

Here's the bottom line on Intel: it's a wait-and-see game. Sure, the $7.86 billion CHIPS Act boost and big-name deals with Microsoft and AWS look promising. But with a surprise CEO exit and ongoing foundry woes, now's not the time to make any bold moves. At 1.80 times forward sales, Intel might seem like a bargain after its nosedive, but the company still needs to prove it can pull off its comeback plan under new management. If you're already in, you might as well stick around. If you're thinking of buying, keep your cash on hand – this show's far from over.