Intel Loses Favour: Billionaire Investors Exit as AI Focus Shifts

Amidst the ongoing AI-driven stock market rally, Intel Corporation (LON: INTC) has seen a significant shift in sentiment from major investors, with prominent figures like Ray Dalio and David Tepper exiting or reducing their stakes in the company.

The second quarter saw a significant downturn for Intel, with the company reporting disappointing earnings and issuing a weak guidance for the third quarter. The results highlighted that the promised growth in AI comes at a steep cost, impacting profit margins.

Intel's gross margin is expected to fall to 34.5% in the third quarter, a stark contrast to the 38.7% reported in the second quarter and well below the company's previously projected 43.5%.

Compounding Intel's woes is a persisting inventory problem. The company currently holds 137 days of inventory, significantly exceeding the industry average of 90 days. This represents a staggering £8.9 billion of unsold stock, further adding to financial pressure.

Despite cost-cutting measures and investments in AI, analysts believe Intel's inventory issues will take time to resolve. S&P Global has placed the company's credit rating under review, expressing concerns about the long-term viability of Intel's competitiveness and growth potential.

Raymond James, in a report following the earnings announcement, indicated that Intel's margin problems are expected to persist until at least 2025. The higher cost of external wafers used in AI production is negatively impacting margins, despite modest increases in average selling prices.

The recent developments at Intel have prompted many investors to shift their focus to other AI-related stocks, as the company grapples with its core challenges.

Invesco Growth and Income Fund, in their Q2 2024 investor letter, cited Intel's declining performance as a contributor to their portfolio's underperformance. They expressed concern over the company's foundry business and its lack of progress in securing AI market share.

Intel currently ranks ninth on Insider Monkey's list of AI stocks being bought and sold by hedge funds. While the company has potential, the focus remains on other AI stocks with a greater likelihood of delivering higher returns in a shorter timeframe.

For investors seeking an AI-focused stock with strong prospects and a lower valuation than Intel, further research into undervalued AI companies might be worthwhile.