Intel stock price forms a rare pattern as dividend-cut bets rise

Intel (NASDAQ: INTC) stock price has been in a tough spot in the past few months as the company faces numerous challenges in its business. The shares have lost more than half of their value and are trading at $26. It has been one of the worst-performing semiconductor stocks in the industry.

How Intel lost its shine

Intel, which was the biggest semiconductor company in the world, has moved from one crisis to another. Bad judgment made the company miss the rebound of the smartphone industry, which is now dominated by Qualcomm.

At the same time, the company’s internal processes have not helped it as it has been passed by smaller companies like AMD in the 7nm space. This happened even as Intel’s research and development costs continued rising. Since 2013, the company has spent more than $147 billion in R&D costs. In contrast, AMD has spent less than $20 billion in R&D and achieved significant successes. 

Intel has continued losing its market share across all segments, including PCs and data centers. As a result, with the company’s free cash flow (FCF) has continued dwindling even as the total addressable market has grown. 

Intel’s levered free cash flow came in at over $7 billion in 2013 and $4.26 billion in 2022. This trend could continue as the company continues boosting its spending. For example, it is one of the semiconductor companies building plants in the United States. As a result, there are real chances that Intel will cut its dividend soon after having growth for 8 straight years.

Cheap for a reason

Everybody agrees that Intel is one of the cheapest semiconductor stocks in the industry. The firm has a price-to-earnings ratio of 14.23 and a forward multiple of 10. This is significantly lower than the broad S&P multiples of about 20. Also, chip stocks like AMD and Taiwan Semiconductor have a higher PE multiple.

For a company like Intel, I believe that the price-to-free cash flow is a better multiple to look. It has a trailing P/FCF multiple of 7, meaning that investors don’t see any growth in the coming months. 

Intel is cheap for a reason. For one, as I noted above, the company is at risk of disappointing investors with a dividend cut. Its earnings guidance remains deeply in the red while competition remains strong. And PC sales are taking longer than expected to recover.

Intel stock price technical analysis

INTC chart by TradingView

Technical analysis is the best way to identify the key points to watch in a stock. On the weekly chart, we see that the shares moved below the neckline of the double-top pattern a few months ago. This move signaled that bears were in control.

Now, the stock has formed a bearish pennant pattern that is shown in black. In most cases, this pattern is usually a bearish sign. Therefore, there is a real possibility that the stock will crash below the support at $20 soon. $20 is an important level since it was the lowest swing in August 2015. It is about 21% below the current level. The price is also in line with what I warned a few months ago in this report.