Intel shares have dropped 24% since CEO Pat Gelsinger took over a year ago. More recently, shares dropped 6% the day after he tried to convince investors to believe in Intel over the long term at an all-day investor event held Feb. 17.
Shortly after that recent downturn, Gelsinger purchased 15,600 shares of Intel stock on Feb. 24 and Feb. 26 valued at $747,289, according to SEC records.
On the latest of Gelsinger’s two insider purchases, shares had risen to $49.94 but were trading lower on Monday at $47.65. On Feb. 22, Intel Chairman Ishrak Omar also made an insider purchase, buying up 11,025 shares at $45.10, for a total value of $497,227. The stock hit a 52-week low late Wednesday-early Thursday of $44.65 when Russia invaded Ukraine, an event that also caused markets to fall globally.
It’s not uncommon for top officers in large companies to buy insider shares, especially on dips, partly to show faith in the future of the stock and the company.
“It shows they are true believers in what they are doing to revitalize the company and it sends a signal to the financial community that if the execs are buying in with their own money, there must be good things going on,” said Jack Gold, an analyst at J. Gold & Associates, in comments to Fierce Electronics
The overall Intel share decline of the last year also shows that short term investors are more interested in Intel competitors such as AMD, Intel and Qualcomm. However, “many investors are underestimating Intel at this point, chasing the shiny new objects instead of the old reliable,” Gold said.
Competitors are doing great things with new technology IP, but new technologies by top competitors tend to leapfrog one another. “To assume with all the resources at their disposal that Intel can’t catch up is a dangerous assumption,” Gold added. “Intel grew by management always telling people to be paranoid about competition.”
Gold said intel has IP that others don’t, just as competitors have produced IP that Intel lacks. “There needs to be a short-term and a long-term view of Intel,” Gold said. “Short-term difficulties remain, but long-term, I think Intel is on a path to renew industry leadership.”
Patrick Moorhead, an analyst at Moor Insights & Strategy, largely agreed. “I think Intel has the right strategy,” he said. “The stock is depressed as investors are getting a handle on capex, trust in execution, and its ability to put a dent into Nvidia’s AI dominance.”
Investors will respond positively, Moorhead said, as Intel “starts making more traction in AI,” spins off its Mobileye unit as a publicly traded entity in mid-year and closes on the purchase of Tower Semiconductor, perhaps by year end.
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Gold added, “Intel does face headwinds with renewed competition from AMD and Nvidia in key markets and from the Arm camp and particularly Qualcomm in the personal computing space, but Intel still has a major market share that will be difficult to eliminate. And they finally seem willing to fight back after being complacent for several years.”
At the Feb. 17 investor event, Gelsinger said Intel needs to continue to invest. “The continued proliferation of technology is driving sustained, long-term demand for semiconductors, creating a $1 trillion market opportunity by 2030,” he said. (A full replay of his keynote and other presentations are available on the Intel website.)
Intel holds major advantages in chip packaging technology and has a “huge” number of software engineers working on enabling firmware, software and beyond, Gold said.
Gelsinger also explained that Intel’s high gross margins will decline this year and not rise again until 2025 after several years of investments, such as new chip fabs in Arizona, Ohio and outside the U.S. Gross margins (revenue minus the cost of goods sold) will fall to 52% in 2022, and hover between 51% and 53% in 2023 and 2024, he said. After that point, he said gross margins are expected to climb to 54% to 58%.
A prediction of no big profit margin gains before 2025 could have been a big reason for the share decline after the investor meeting. For revenues, Intel predicted a revenue increase of 1.7% to $76 billion in 2022, then mid-to-high single digit percentage growth in 2023-2024, followed by gains of 10% to 12% for 2025-2026.
Amid speculation that a consortium may emerge to buy up Arm, Gelsinger said Intel would be interested in participating in such a consortium. Nvidia recent backed off a $40 billion bid to purchase Arm for $40 billion, citing governmental opposition. Meanwhile, Arm and its owner SoftBank have said they are preparing for a public offering of Arm, with hope of completing an IPO in a year.
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