If there were a three-way combination for bad earnings reports, Intel (INTC -1.39%) would have simply won.

The blue-chip technology stock missed estimates in its second-quarter earnings report, issued guidance that was below expectations, cut its dividend and announced a round of layoffs and cost cuts.

Any one of these pieces of news alone would have been enough to send the stock price soaring, but all four pieces of news simultaneously show a company in utter disarray, unable to meet its own forecasts, unable to maintain cash flow, and unable to use internal resources effectively.

Unsurprisingly, Intel’s share price plummeted following this news, closing Friday down 26 percent. The stock is now trading at its lowest level in over a decade.

Intel’s business was already showing warning signs, as the company previously cut its dividend, missed guidance, and appeared to be lagging in the AI ​​race. But the second-quarter update makes it clear that the company is basically broken. Buyers who make purchases after dips may be thinking about buying the stock, but Intel could easily fall even further, and a series of events could trigger just that.

Image source: Getty Images.

1. The forecast for 2030 should be withdrawn

CEO Pat Gelsinger is banking on Intel Foundry, the company’s chip manufacturing division, and on artificial intelligence through new products such as the Gaudi 3 accelerator for the company’s future.

Earlier this year, as the company was restructuring and spinning off Intel Foundry as a separate business segment, Intel provided a long-term forecast that outlined a path to record profits. Intel said losses in the foundry business would peak this year, operating margins would break even by 2027, and adjusted operating margins would reach 30% by 2030. The company also said it was targeting a 40% adjusted operating margin in the product business by 2030.

At the time, those goals seemed far away and lofty, but today they are little more than pipe dreams. In its second-quarter report, Intel missed its own gross margin forecast of 40.2% by a wide margin, reporting a 35.4% result. The company attributed the miss to an accelerated ramp-up of its AI PC product, higher-than-expected costs for non-core businesses and headwinds from idle capacity.

Companies do miss their forecasts, but a five percentage point miss is significant. It indicates both management’s inability to predict business performance and the volatility inherent in a cyclical high-tech industry.

Intel can’t control competitor behavior, customer demand, new technologies, the business cycle, or regulations like recent U.S. chip export restrictions to China. It’s foolish to think the company can chart a steady path to margin improvement over the next six years and get there as expected. After Thursday’s news, it seems likely that that guidance will be withdrawn at some point, and that will likely push the stock lower. It’s just a matter of when.

2. Exclusion from the Dow could be imminent

Intel has renewed its membership in the Dow Jones Industrial Average (^DJI 0.76%)but its position in the elite blue-chip index consisting of just 30 stocks seems increasingly difficult to justify.

Intel trades at just over $20 per share, meaning its impact on the price-weighted index is almost nothing. The next lowest price in the Dow is Verizon at $41 per share.

The criteria for inclusion in the Dow Jones Index include the company’s reputation, its history of sustained growth, interest to investors and industry representation of the broader market. Since chip stocks are currently trending, the Dow Jones can find much better and more successful representatives of the industry than Intel. NVIDIA And Broadcom have both recently split their stocks, making them eligible for Dow membership, and even Intel against AMD would make sense.

Exiting the Dow would have no impact on Intel’s business, but would further damage the company’s reputation with investors and would be another reminder of the company’s long fall from grace.

3. Recruitment has become even more difficult

Imagine if you had spent the last 20 years working in Silicon Valley and owned company stocks that had not produced any returns in those 20 years. Intel engineers don’t have to imagine that. They’ve experienced it.

Morale at the company is probably at an all-time low right now. Not only has Intel laid off 15 percent of its workforce, but it’s racing to do so while chip stocks have gained trillions of dollars in value on the back of the AI ​​boom. Across town, in Santa Clara, Nvidia employees are swimming in a data center made of gold coins, but Intel can’t compete.

That’s a harsh reality at Intel right now. It could lead to an exodus of employees and make recruiting even more difficult. Ultimately, a company like Intel is only as strong as the people who do the work, and recruiting the best talent is essential to the company’s success.

After Thursday’s layoffs, cost cuts and the collapse in share prices, this has become even more difficult.

Can Intel recover?

It’s possible the company will bounce back one day, but Intel stock deserves to be on the sidelines after such a long period of underperformance. The sell-off may attract bargain hunters, but it will likely be years before management fundamentally turns the company around.

Investors are better off doing something that has proven successful over the past decade: looking elsewhere in the chip sector.