Intel Corp. shares plunged toward their biggest one-day loss in more than a year Friday after the chip maker’s capital expenditure hike is expected to lower profit margins for more than a few years.
shares finished down 11.7% at $49.46, touching an intraday low of $49.14, after more than a dozen analysts cut their price targets and at least two downgraded the stock. Shares have not closed with a decline that large since a 16.2% drop on July 24, 2020 when the chip maker announced a delay on its next generation of chips. The last time the stock closed below $50 was on Jan. 4.
Intel Chief Executive Pat Gelsinger tried to assure concerned analysts that gross margins would stay “comfortably above 50%” late Thursday. Gelsinger is trying to return Intel to its former glory by boosting investment in new manufacturing capacity to about $25 billion to $28 billion, nearly double its previous range, but that is cutting into profit.
“We are repositioning Intel for growth to be a long-term growth company,” Gelsinger said. “Near-term, we could have chosen a more conservative route with modestly better financials, but instead the board, the management team — and this is why I came back to the company — choosing to invest to maximize the long-range business that we have.”
Analysts, though, focused on the next few years before that extra revenue comes in while changing their ratings and price targets on Intel. Mizuho analyst Vijay Rakash contended that Intel was “losing focus” while downgrading the stock to a neutral rating from a buy and cutting his price target to $55 from $70.
“We believe the pivot could become a capital drag, as it is difficult to both win in the foundry market and maintain attractive margins,” Rakesh said. That could also be more advantageous to smaller rival Advanced Micro Devices Inc.
“We now believe splitting focus with building foundry capacity and accelerating five node transitions by 2025 could…