For decades, Intel was the world’s most valuable chipmaker.

Now it is one-thirtieth the size of Nvidia, one-ninth the size of Broadcom, and roughly half the size of AMD, Qualcomm, and Texas Instruments.

This week, the long-dormant chipmaker showed signs of life after announcing the appointment of Lip-Bu Tan as its new CEO.

Yesterday, the stock bounced 16% on the news to $24 per share.

However, this move is still well off the $70 high reached in 2021…

So what happened to Intel? And where does it go from here?

Intel’s Spiral Is A Decade In The Making

To understand Intel’s downward spiral, it’s important to understand that Intel primarily produces Central Processing Units (CPUs).

Think of a CPU as the head chef in a kitchen.

The chef is really good at handling complex tasks one by one, like carefully crafting a dish.

The chef focuses on making sure everything is done perfectly, but can only do so much at once.

These CPUs are used to power PCs and laptops. Previously, Intel dominated this market.

That was until Intel’s 7-nanometer and 10-nanometer chips were significantly delayed in the late 2010s and early 2020s.

This opened the door for AMD to steal significant market share.

Whereas AMD barely had market share in server CPUs a decade ago, Mercury Research estimates AMD had about 25% of the market as of 2024 – a major blow to Intel’s core business.

The “New” Intel

In the chip world, most companies don’t actually manufacture their own chips.

Nvidia, AMD, Qualcomm, Broadcom and many more use what’s known as the “fabless” model, where they outsource manufacturing to companies like TSMC and Samsung.

Intel is unique where they both design and manufacture their own chips.

When recently-ousted Pat Gelsinger became CEO in early 2021, he decided to double-down on manufacturing.

It was an ambitious bet, but the stage seemed to be set in their favor.

Rising manufacturing demand has significantly increased wait times at existing manufacturers TSMC and Samsung.

Plus, this strategy aligns with the onshoring trend we’ve seen in the aftermath of Covid-19, removing reliance on countries like China and Taiwan (where TSMC is located).

Gelsinger initially planned to acquire companies to build out Intel’s manufacturing capabilities.

Unfortunately, acquisitions of GlobalFoundries and Tower Semiconductor failed which forced Intel to build out its manufacturing capabilities the old-fashioned way – by spending billions of dollars over many years constructing these highly technical facilities.

You can see the double-edged sword here: at the exact moment Intel was bleeding market share in its core CPU division, it began racking up billions of dollars in costs to expand its manufacturing business.

The company’s financials certainly took a hit. Both revenue and earnings have declined substantially since the plan was enacted.

Intel Missed The AI Revolution

Occurring in tandem with Intel’s core business losing market share and the very expensive manufacturing buildout was the fact the company completely underinvested for the AI revolution.

While CPUs are the head chef in the kitchen, Graphics Processing Units (GPUs) are like a team of line cooks, and they’re what is powering AI.

Instead of handling one task at a time, the line cooks can handle many smaller tasks all at once – like chopping vegetables or grilling burgers.

They're fast and efficient at doing repetitive tasks simultaneously, which is why GPUs are great for things like graphics and AI.

Nvidia dominates this red-hot market, which is why that stock is up 1,800% over the last 5 years while Intel is down 55% over that same time horizon… 

Now starts the tenure of Lip-Bu Tan, however.

Investors clearly cheered the hiring yesterday, sending the stock sharply higher.

Yet we don’t have any news on his strategy for the ailing chip giant.

For long-term investors looking to bet on a turnaround, Intel could easily be a multi-bagger investment if Lip-Bu Tan can stop the bleeding in Intel’s core CPU business, solidify its manufacturing business, and find some semblance of relevance in the AI revolution.

Easier said than done, of course.

Investors betting on such a turnaround will need patience and an understanding that the turnaround won’t be a straight line higher.

But history has shown that beaten-down giants can sometimes stage the biggest rebounds.