Intel’s (NASDAQ:INTC) early July rally is starting to peter out. However, Intel stock may not be gearing up to cough back any of these latest gains. Shares in the chipmaker, which a few weeks ago hit a new 52-week low of $29.73 per share, are currently holding steady at price levels in the mid-$30s per share.
With this, you may be tempted to jump into a position in the chipmaker, on the view that further promising news and rising optimism will lead to a further surge higher for INTC. Even so, jumping in today could prove to be a regrettable move in hindsight.
Despite the recent sentiment shift, sentiment could soon shift again, and not in a good way. It’s far from a lock that Intel benefits from the AI growth trend. Quite a bit suggests results will fall short of expectations.
Why Intel Stock Has Come Back into Favor
So, what’s behind the recent INTC rally? First, broadening bullishness for AI chip stocks, not just Nvidia (NASDAQ:NVDA), has clearly played a role in the strong performance of this and other AI chip plays lately.
Second, company-specific factors have also helped to sustain the Intel stock summertime rally. As Louis Navellier and the InvestorPlace Research Staff recently pointed out, investors are optimistic that a surge in sales of Intel’s Gaudi AI accelerator chips, as well as its upcoming Lunar Lake AI-PC chips, will lead to a massive earnings rebound in 2025.
That’s not all. Late last week, Greg Lavender, Intel’s Chief Technology Officer, touting Intel’s success thus far with its move into software. Per Lavender, the company’s cumulative software revenue could top $1 billion by the end of 2027.
Given all of these factors, it makes sense that the market has bid up INTC back to higher prices. Nevertheless, the question now is whether this rally is sustainable, or if shares are at risk of correcting in a big way.
While the Intel bulls may believe they have a substantive case backing why it’s the former, one can formulate an even stronger argument why it’s the latter.
This House of Cards Rally Could Soon Falter
Headlines and announcements, not hype, may drive the Intel stock rally. However, this rally is a house of cards that could soon falter. First, the broad surge among AI chip stocks has been driven in large part by Big Tech’s continued commitment to investing heavily into AI infrastructure.
But if concerns about the likely payoff from these big AI wagers keep rising, or if the initial results from this massive jump in AI spending fails to produce satisfactory results, we could see the tech sector walk back some of its ambitious plans. The prospect of lower AI spending may in turn cast doubt on a 2025 earnings recovery.
That’s not all. It’s also not set in stone that the pending AI-PC chip boom serves as another “silver bullet” that brings an end to Intel’s growth and profitability slump. Intel’s AI-PC chips face high competition from not just Nvidia and Advanced Micro Devices (NASDAQ:AMD), but other names like Qualcomm (NASDAQ:QCOM) as well.
Hence, Intel may be far less well-positioned than you think to grab a significant share of this market. If subsequent developments suggest this scenario plays out, this too could drive an INTC pullback.
Bottom Line: Let Fair Weather Fans Sweat it Out Instead
In time, those willing to wager that Intel will not just meet, but beat AI growth expectations, could prove to be little more than fair weather fans of the stock. That is, if my bearish thesis plays out, and Intel’s AI success in 2024 and 2025 proves to be mixed at best, these investors will clear out of shares in droves, driving another round of volatility.
If not the AI catalyst, further bad news regarding Intel’s foundry catalyst could potentially do this as well. As Navellier also pointed out recently, delays in the profitability timeline for the company’s budding third-party chip fabrication business is something else that could sink the stock.
Considering the unfavorable setup with INTC right now, here’s the takeaway. Stay away, and stick to other promising, priced AI chip plays, like QCOM. Let the fair weather fans sweat it out with Intel stock.
On the date of publication, Thomas Niel did not hold (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.
On the date of publication, the responsible editor did not have (either directly or indirectly) and positions in the securities mentioned in this article.
