Intel Falls Out of Dow Jones Index: Time to Avoid INTC Stock?

Intel Corporation INTC has relinquished its coveted position on the Dow Jones Industrial Average (“DJIA”) — a leading stock market index of 30 blue-chip firms — to NVIDIA Corporation NVDA. The radical shakeup marks a significant shift in the semiconductor ecosystem with the growing dominance of AI (artificial intelligence) and ends Intel’s 25-year run in DJIA. 

Moreover, the fact that Intel had the least influence on the index, owing to its lowest share price tally compared with the other Dow components, offered another compelling reason to dump the stock from the price-weighted index.

Although Intel scaled its AI footprint with the launch of Core Ultra processors and Gaudi 3 accelerator featuring advanced graphics and AI processing power, it lagged NVIDIA on the innovation front with the latter’s H100 and Blackwell graphics processing units (GPUs) being runaway successes. Leading technology companies are reportedly piling up NVIDIA’s GPUs to build clusters of computers for their AI work leading to exponential revenue growth. 

An accelerated ramp-up of AI PCs further affected the short-term margins of Intel as it shifted production to its high-volume facility in Ireland, where wafer costs are typically higher. Margins were also adversely impacted by higher charges related to non-core businesses, charges associated with unused capacity and an unfavorable product mix. 

Intel has been facing challenges due to the disruptive rise of over-the-top service providers in this dynamic industry. Price-sensitive competition for customer retention in the core business is expected to intensify in the coming days. Aggressive competition is likely to limit the ability to attract and retain customers and affect operating and financial results.

China accounted for more than 27% of Intel’s total revenues in 2023, making it the single largest market for the company. However, the communist nation’s purported move to replace U.S.-made chips with domestic alternatives significantly affected its revenue prospects. The recent directive to phase out foreign chips from key telecom networks by 2027 underscores Beijing’s accelerating efforts to reduce reliance on Western technology amid escalating U.S.-China tensions.

As Washington tightens restrictions on high-tech exports to China, Beijing has intensified its push for self-sufficiency in critical industries. This shift poses a dual challenge for Intel, as it faces potential market restrictions and increased competition from domestic chipmakers. The second-quarter 2024 revenues were adversely impacted by the revocation of certain licenses for exports of consumer-related items to a customer in China.

Moreover, weaker spending across consumer and enterprise markets, especially in China, resulted in elevated customer inventory levels, culminating in soft demand trends. Strict export control measures are further likely to affect the market dynamics.

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