Warning! Buying INTC Stock Could Be the Wrong Move.

Stocks to sell

Most semiconductor stocks surged in 2024, but Intel (NASDAQ:INTC) stock hasn’t felt the love, down 7% this year and 18% over the past five years. Intel’s struggles include a diminished outlook and delayed construction for the company’s Ohio plant due to “weak market conditions.” This contrasts starkly with the extremely high chip demand seen across the sector, especially in AI-related applications.

The CHIPS and Science Act allocates funding to boost domestic chip production, with Intel being a key beneficiary of this legislation. Commerce Secretary Gina Raimondo mentioned that chip makers, including Intel, seek over $70 billion from the act. The Biden administration expects the U.S. to produce 20% of advanced semiconductor chips by the decade’s end. 

Intel aims to position itself as a prominent AI hardware company, but must prove its AI focus translates to strong sales.

Intel is Lagging

INTC stock closed at $42.71, up 0.16% from the previous session, trailing the S&P 500’s 0.63% gain. Over the past month, INTC stock declined by 2%, while the Computer and Technology sector rose by 1.16%. Analysts anticipate Intel’s earnings report, expecting a significant earnings per share increase to $0.13 and revenue to rise to $12.76 billion.

During an analyst call, CFO David Zinsner attributed weak Q1 forecasts to automotive and programmable chip inventory adjustments. Despite setbacks, CEO Pat Gelsinger remains optimistic about FY 2024 revenue and the company’s EPS growth outlook.

The fourth quarter saw PC sector gains, but declines in data center and networking chips offset these tailwinds. Intel reported it expects a double-digit Q1 data-center revenue decline due to AI system transitions. That outlook has not been good for this stock.

Delayed Facility in New Albany

Intel’s New Albany semiconductor plant in Ohio faces a delayed launch, as confirmed by documents submitted to the state.  The company already set expectations for the facility: construction will begin by 2026 and will be fully operational by 2027. 

In the report signed by Vice President Jim Evers, Intel highlights progress in New Albany’s Silicon Heartland. With $4.5 billion committed, including $3 billion in ongoing spends, Intel aims to establish a semiconductor manufacturing campus. Facing construction and funding delays since 2022, Intel acknowledges missing its 2025 chip production target.

The company had already secured funding from the state government in June 2023, receiving $600 million in grants to construct two manufacturing facilities in central Ohio. While Ohio can reclaim the funds if Intel fails to meet its obligations, the company will retain the money if the plants employ at least 3,000 workers by 2028. 

Ohio Lt. Governor Jon Husted highlighted the robust supply chain emerging at Intel’s New Albany site, emphasizing the significant investments made by the company and the increasing presence of local suppliers.

Chips Grant to be Announced

President Joe Biden and Commerce Secretary Gina Raimondo revealed plans last week in Arizona for a multi-billion-dollar grant to Intel to bolster its chip production in the US. Intel, which invited customers and suppliers, hasn’t said much about this grant, but expectations are that it could be a boon for the company’s long-term profile. 

The company, seeking expansion funds in Ohio and Arizona, aims to secure political sway in the pivotal state of Arizona. This grant, part of the 2022 CHIPS and Science Act, signals America’s push to enhance semiconductor output.

In January, the U.S. Commerce Department awarded Microchip Technology $162 million in grants to triple semiconductor production. Similar grants for Samsung and TSMC are anticipated to reduce reliance on China and Taiwan. Intel’s grant solidifies Arizona’s chipmaking prominence, and could be seen as a bullish long-term catalyst.

I Wouldn’t Buy INTC Stock Right Now

Intel is a company that certainly has some longer-term growth tailwinds worth considering. The company has garnered plenty of political goodwill, and its willingness to invest in America and provide high-paying jobs is likely to create a positive environment for grants down the line. The CHIPS act could disproportionately help Intel relative to its peers, which is a good thing.

However, the company’s near- and medium-term outlooks remain murky. I think there are far too many higher-quality options in the chip sector to choose from right now. Thus, I think INTC stock is bound to underperform, at least for the foreseeable future.

I may be wrong, and for the sake of Intel investors, I hope so. But this just isn’t a stock I’d add fresh capital to right now.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.