We recently published a list of Top 10 Trending AI Stocks Amid Latest News and Analyst Ratings. Since Intel Corp (NASDAQ:INTC) ranks 8th on the list, it deserves a deeper look.
The reality is finally catching up to the AI hype as investors await to see ROI on huge spending on AI chips and infrastructure. Dan Niles, Niles Investment Management founder and portfolio manager, during an interview with CNBC last month, called the decline in Mag. 7 stocks after Q2 earnings representative of a “fundamental shift” in the industry.
“I know it’s popular to talk about AI because these stocks are driving the market, but at a certain point, you want to get a return on all of this money you are investing. And if your forward revenue estimate is going lower not higher but your CapEx is going up, at some point those two things are going to collide.”
Niles said that major tech companies went through a “digestion” period after seeing huge returns during the COVID-19 pandemic days, and he expects the same to happen as we move into the next year.
The analyst said that on an equal-weighted basis, the broader market is up when compared with Mag. 7 stocks. He recommended investors to buy the stocks that would benefit from rate cuts. These include consumer staples, utilities, telecom services, etc.
Niles said the other 493 companies could drive the market to new “all-time record highs.”
For this article, we picked 10 AI trending stocks that are moving after latest analyst ratings and earnings. With each company we have mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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Intel Corp (NASDAQ:INTC)
Number of Hedge Fund Investors: 75
Intel Corp (NASDAQ:INTC) shares recently gained after a report said the company is working with advisers for strategic options to turn around the company.
Ed Snyder, Charter Equity Research co-founder and managing director, said while talking to CNBC that the current CEO of Intel, Pat Gelsinger, will have to go for the company to see a turnaround because after joining the company as CEO he just followed the “playbook” of the former management and continued to “run with it.”
“Intel is incapable of being a foundry… Intel’s culture is…. we are Intel we know what’s best.. Shutup and do what you are told.”
Intel Corp (NASDAQ:INTC) shares recently saw a bloodbath following the company’s weak Q2 results and disappointing guidance. The results show the AI growth everyone was talking about won’t come in cheap. Intel Corp (NASDAQ:INTC) expects its gross margin in the third quarter to decline to 34.5% from 38.7% reported in the second quarter, which was a significant decline from the company’s expectation of 43.5%.
While Intel Corp (NASDAQ:INTC) has suspended its dividend and announced massive layoffs, its problem of inventory won’t be resolved anytime soon. Intel has 137 days of inventory, worth over $11.2 billion. This is much higher than the industry average of 90 days. Intel Corp (NASDAQ:INTC) has close to $52 billion in long-term debt and analysts believe its cost-cutting measures along with AI growth initiatives won’t let it fix this problem soon. S&P Global recently put the stock’s credit rating on “watch” saying:
“While these cost-cutting measures, including significant capital expenditure reductions, could alleviate some near-term cash-flow-generation challenges, it is unclear whether these steps will be sufficient to maintain its business competitiveness and enable healthy growth.”
Raymond James said in a report after earnings that Intel’s margin issues are expected to continue until 2025. AI PC growth has become a larger headwind for margins, as the higher cost of external wafers offsets modest average selling price premiums.
Amid these factors, investors are better off looking for other AI stocks and avoid Intel for now until there’s visibility on how exactly Intel Corp (NASDAQ:INTC) would resolve its core problems.
Ariel Global Fund stated the following regarding Intel Corporation (NASDAQ:INTC) in its Q2 2024 investor letter:
“Alternatively, several positions weighed on performance. One of the world’s largest semiconductor chip manufacturers by revenue, Intel Corporation (NASDAQ:INTC), underperformed in the period on news of a longer than expected turnaround in profitability within the Foundry business. This was exacerbated by disappointing near-term guidance due to a weakening demand environment signaling an extended replacement cycle. We view the quarter as a temporary trough that should dissipate as we see signs of a cyclical recovery for personal computers (PCs) and central processing units (CPUs), driven by the Windows 11 upgrade. In our view, the market is overlooking the progress Intel is making to advance its manufacturing process. Not to mention, the company’s efforts to serve as a viable second source foundry partner of leading-edge silicon. We believe the separation of the design and manufacturing businesses will be a key catalyst in unlocking improved financial performance while also enhancing the competitiveness of the foundry business.”
Overall, Intel Corp (NASDAQ:INTC) ranks 8th on Insider Monkey’s list titled Top 10 Trending AI Stocks Amid Latest News and Analyst Ratings. While we acknowledge the potential of Intel Corp (NASDAQ:INTC), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than INTC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.