Intel shares fell 26% on Friday, marking their worst day since 1974, after the chipmaker halted its dividend and reduced its staff to fund an expensive turnaround after losing its once-dominant worldwide position. The business lost more than $30 billion in market value after delivering a dismal estimate and announcing plans to slash 15% of its personnel, raising concerns about its ability to catch up with Taiwan’s TSMC and other chipmakers.
The stock closed at $21.48, its lowest since 2013.”Intel’s issues are now approaching the existential in our view,” Bernstein analyst Stacy Rasgon said. Rasgon estimated that the steps, along with subsidies and partner contributions, could contribute $40 billion in cash to Intel’s balance sheet by the end of 2025. While Intel’s production issues are unique to the Santa Clara, California-based business, other chipmakers also fell for the second consecutive day.
Weak employment data on Friday heightened concerns about a downturn in the US economy, prompting traders to wager that the Federal Reserve will deliver a significant half-point rate drop in September, rather than the 25-bp decrease forecast prior to the report. “The euphoria around AI and large-cap technologies has subsided. The future is still bright, but investors got a little carried away, and we’ve seen what happens when everyone gets on the same page,” said Ryan Detrick, chief market analyst at The Carson Group.
Companies that sell equipment used in facilities owned by Intel and other manufacturers declined dramatically, raising investor fears about the pace of future expenditures in manufacturing infrastructure. Applied Materials, ASML Holding, and KLA Corp all fell approximately 8%. The PHLX chip index fell 5.2%, taking its weekly loss to over 10%.
Nvidia fell about 2%, with the main vendor of AI processors down more than 20% from its record high on June 18. Worries about a recession, along with quarterly results from Amazon and Alphabet that failed to please Wall Street, have cast doubt on the future pace of AI investment, according to Ross Mayfield, an investment strategy analyst at Baird. “The question of whether this AI capital expenditure can sustain essentially vertical or exponential growth is more significant, particularly in light of the weakening macro environment,” Mayfield stated.
