Key Points

• Reddit stock has slumped despite rapid growth and opportunities for better monetization.

• Paycom stock is still reeling from its revenue slowdown.

• Both stocks look appealing for long-term investors.

The stock market is carving out new all-time highs, but some individual stocks have yet to fully recover. Reddit (NYSE: RDDT) and Paycom (NYSE: PAYC) are still well off their respective peaks, presenting an opportunity for long-term investors. Both companies face risks, but solid growth stories make Reddit and Paycom attractive stocks.

Image source: Getty Images.

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Reddit: Down 30% from its high

Social media company Reddit has become a key source of reliable information for internet users. Standard search engines, riddled with ads and content designed to rank rather than provide solutions, are far less useful today than they were in the earlier days of the web.

Reddit is now working to better monetize its more than 400 million weekly active unique users. Average quarterly revenue per unique user stood at just $3.63 in the first quarter, compared to more than $12 for Meta Platforms. That metric was up 23% year over year for Reddit in the first quarter, while overall revenue soared by 61%. Reddit has been launching new features for advertisers, including dynamic product ads in May and personalized guidance and insights in June.

Reddit does face some risk from artificial intelligence (AI) as people turn to chatbots and other AI tools for answers. However, Reddit's reputation for providing reliable information may be enough to overcome the AI threat. AI isn't particularly reliable or trustworthy, so many users may still opt for Reddit when looking for product recommendations and other information that leads to purchases.

Reddit stock has been recovering in recent weeks, but it remains down around 30% from its all-time high. The stock is pricey, trading for nearly 16 times the average analyst estimate for 2025 sales. That valuation may be tough to swallow, but Reddit has the potential to grow revenue at a strong double-digit pace for many years to come. For long-term investors, Reddit is the social media stock to own.

Paycom: Down 58% from its high

Shares of payroll and HR software provider Paycom began a steep descent in late 2022, and it picked up steam in 2023 as the company's automated Beti product started cannibalizing other sources of revenue. Beti is a breakthrough product that allows employees to manage their own payroll, and it can greatly reduce administrative overhead. However, in the short term, the product's rollout led to a sharp slowdown in revenue growth.

Paycom's revenue growth rate hovered around 30% in the years leading up to the pandemic, and while it took a hit in early 2020, it bounced back to those 30% levels soon after. The situation changed drastically with Beti. Revenue grew by just 11% in 2024, and it was up 6% year over year in the first quarter of 2025.

While the revenue slowdown is a concern, Paycom's willingness to disrupt itself to deliver superior returns on investment to its customers should pay off in the long run. Beti is an attractive product for companies looking to reduce costs, and customers who adopt Beti will likely churn at a lower rate. Once the dust settles, growth should accelerate once again.

One major risk facing Paycom is the state of the economy. Paycom is sensitive to the labor market, and there are some signs that it's starting to crack in the face of U.S. tariffs and economic uncertainty. An economic slowdown could delay Paycom's comeback, but the company is well positioned for the future with Beti. Trading at around 26 times forward earnings, with the potential for robust earnings growth in the years ahead, Paycom stock looks like a good deal for long-term investors.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Timothy Green has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms and Paycom Software. The Motley Fool has a disclosure policy.

Key Points

• Unity is refocusing on subscriptions and improving its advertising platform after a major company reset.

• Intel is leaving no stone unturned as it searches for a viable strategy after years of struggle.

• Both stocks could soar on any positive developments.

The stock market has rebounded over the past few months, but some struggling stocks have been left behind. Unity (NYSE: U) and Intel (NASDAQ: INTC) are facing serious challenges, and it will take time for their turnarounds to gain traction. In both cases, new CEOs are making big changes with the potential to get the companies back on track. While Unity and Intel are risky stocks, they could soar on any positive progress.

Image source: Getty Images.

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Unity

Video game engine developer Unity went through a major restructuring last year. A company reset led to significant layoffs and the exit from multiple non-core businesses. A new CEO stepped in last May with extensive experience in the mobile games business. While progress has been slow, the early results are promising.

While Unity's overall revenue still declined in the first quarter of 2025, the situation looks better under the surface. Subscription revenue increased, the result of price increases and the company fully scrapping a proposed fee that set off a developer revolt in 2023. Unity 6, the latest version of the company's game engine, brings important performance improvements and new features that are resonating with customers.

In the advertising business, the launch of the new artificial intelligence (AI)-powered Vector ad platform sets the stage for recovery. The Grow Solutions segment, which houses Unity's advertising business, still saw revenue decline by 4% in Q1. However, Unity Vector is starting to offset declines in other products.

Unity is one of two major commercial game engines that dominate the market, along with Epic Games' Unreal Engine. This dominant position is Unity's most valuable asset, and the game engine is used heavily across the gaming industry. The challenge now is to turn that dominance into a growing, profitable business.

Shares of Unity are down 88% from their all-time high. While the turnaround is just getting started, visible progress over the next few quarters could light a fire under the stock and deliver major gains to patient investors.

Intel

Semiconductor giant Intel is going through some major changes. Following a turnaround effort led by former CEO Pat Gelsinger that ultimately led to his ouster, the company has brought on industry veteran Lip-Bu Tan to fix its problems. The first order of business is a streamlining of operations that will involve substantial layoffs. Rumors suggest that even workers in the foundry, one of Intel's key growth initiatives, won't be immune. Intel is also planning to outsource marketing to a consulting company, which will use AI to slash marketing costs.

Beyond cost cutting, Intel will likely pare down its product portfolio and focus on its best opportunities. A new strategy for its AI chip business could be coming following the scrapping of its previously planned Falcon Shores GPU. The company has already sold off a majority stake in Altera, and more exits could be coming.

In the foundry business, Tan may be about to take a dramatic step. According to Reuters, Tan is considering giving up on marketing the Intel 18A manufacturing process to external customers, instead shifting focus to the upcoming Intel 14A process. While Intel 18A represents a huge leap over Intel's previous manufacturing technology, it only closes the gap with TSMC, and the company has struggled to win over big customers.

Long story short, Intel's comeback is going to be a drawn-out affair. However, the stock is priced so pessimistically today that any meaningful progress could send shares soaring. Intel is currently valued right around book value, or assets minus liabilities, a historically low valuation for the storied semiconductor company. If Tan can tell a good story and convince investors that a turnaround is viable, a major recovery for the stock could be in the cards.

Intel investors will need to be patient as the company attempts to fix its past mistakes and return to profitable growth. It's not a sure thing, but the risk-reward trade-off looks appealing.

Don’t miss this second chance at a potentially lucrative opportunity

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Timothy Green has positions in Intel. The Motley Fool has positions in and recommends Intel, Taiwan Semiconductor Manufacturing, and Unity Software. The Motley Fool recommends the following options: short August 2025 $24 calls on Intel. The Motley Fool has a disclosure policy.

Key Points

• IBM is seeing growth accelerate as its bets on hybrid cloud and AI pay off.

• AT&T is posting solid wireless growth, and it plans to double its fiber network size over the next five years.

• Both stocks are up big and sport attractive dividends.

While many high-flying tech stocks don't pay dividends at all, investors can still find attractive dividends within the tech sector. International Business Machines (NYSE: IBM) and AT&T (NYSE: T) are two great examples. On top of solid dividends, both IBM and AT&T have been delivering impressive gains to investors over the past few years. While the past doesn't predict the future, these two dividend stocks look attractive for long-term investors.

Image source: Getty Images.

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IBM

Shares of IBM have more than doubled over the past three years as the company's long-awaited turnaround finally materialized. IBM's bet on hybrid cloud computing, anchored by its acquisition of Red Hat and progress in artificial intelligence (AI), have led to consistent revenue and free-cash-flow growth. For 2025, the company expects to grow currency-adjusted revenue by at least 5% while producing around $13.5 billion in free cash flow.

AI is turning into a big win for IBM. The company's dual focus on software and consulting is winning over enterprises, resulting in $6 billion in generative AI-related bookings so far. IBM's watsonx platform and its efficient Granite AI models are geared toward solving real-world problems for enterprise clients, and its consulting arm can construct AI solutions involving IBM and third-party products.

IBM has kept dividend increases small in the wake of the $34 billion Red Hat deal. The latest dividend hike was just a penny, bringing the quarterly dividend up to $1.68 per share. Even so, IBM's dividend looks attractive, with a yield of around 2.3%. The company's dividend track record is tough to beat. As of this year, IBM has paid consecutive quarterly dividends since 1916, and it's increased that dividend annually for 30 years in a row.

With free cash flow on the rise, IBM's dividend is set to consume less than half of the company's free cash flow in 2025. That leaves plenty of cash flow left over for debt reduction and other uses, and if free cash flow keeps growing, larger dividend hikes could be on the horizon.

AT&T

Since bottoming out in mid-2023, shares of telecom giant AT&T are up around 110%. While investors had shunned the stock for years following the company's failed media acquisitions and messy disposal of those assets, they've been warming back up to AT&T recently.

Today, AT&T is focused on 5G wireless and fiber. The company has delivered consistent wireless subscriber growth over the past few years, and its fiber network is set for a major expansion. AT&T recently passed its 30 millionth fiber location, and it expects to double the network's reach by the end of 2030. The recent acquisition of Lumen's Mass Markets fiber business will help the cause.

For 2025, AT&T expects mobility service revenue to grow by around 3%, consumer fiber revenue to surge by a mid-teens percentage, and free cash flow to top $16 billion. That free cash flow supports AT&T's dividend, which has become more sustainable as the company's results have improved.

AT&T slashed its dividend when it spun off WarnerMedia, and it has kept its dividend payments unchanged since then. The current quarterly dividend is $0.2775 per share, which works out to a dividend yield of 3.8%. AT&T will pay out around $8 billion in dividend payments this year, or roughly half of its free cash flow.

While AT&T's dividend hasn't increased in years, a higher dividend could be coming soon. The company hit its debt-reduction goals this year and plans to resume share repurchases in Q2. With less focus on debt reduction, a dividend increase could also be on the table.

For investors looking for a safe dividend with a high yield, AT&T is a great choice.

Should you invest $1,000 in International Business Machines right now?

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Timothy Green has positions in AT&T and International Business Machines. The Motley Fool has positions in and recommends International Business Machines. The Motley Fool has a disclosure policy.

A future quantum computer could potentially solve problems that are essentially impossible for even the most powerful supercomputer. The magic comes from the nature of quantum physics. While traditional computers operate on bits that can be in only one of two states, a quantum qubit is probabilistic, occupying some combination of those two states. This property opens the door to exponentially faster computations.

Today's quantum computers generally aren't capable of solving real-world problems quicker than traditional computers. They are capable of performing some types of computations faster, but these computations are more toy problems than anything else. When Alphabet's Google unveiled its Willow quantum chip last year, it claimed that Willow could perform a particular benchmark in five minutes that would take a supercomputer 10 septillion years. Unfortunately, that benchmark has no known real-world applications.

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Image source: Getty Images.

Another problem is error correction. Qubits are fragile, and errors are inevitably introduced over the course of a computation. Those errors must be prevented, corrected, or otherwise mitigated for long enough for a computation to be completed.

Microsoft made some noise on this front earlier this year with its Majorana 1 quantum chip, which uses exotic particles to create more robust qubits. However, the company is in the early stages of scaling this technology, and it could very well be many years before anything useful comes out of it.

International Business Machines (NYSE: IBM), a quantum computing pioneer, now sees a path to full-scale quantum error correction by 2029 and true quantum advantage by the end of 2026. The company has a clear roadmap, and if it can deliver, quantum computing could turn into a major business for the century-old tech giant.

The path to fault-tolerant quantum computers

IBM is taking a modular approach on its path to the holy grail of quantum computing. This year, IBM will release Nighthawk, its new quantum process with 120 qubits and 5,000 quantum gates. Over the next few years, successive versions of Nighthawk will increase the number of gates, culminating in 2028 with a 15,000-gate version that can be linked together in groups of nine. IBM believes Nighthawk will be able to achieve true quantum advantage.

Nighthawk is a stepping stone toward Starling, the fault-tolerant quantum computer planned for 2028. To build Starling, IBM will release three iterations of quantum chips over the next few years that include the necessary technology to make Starling a reality.

IBM Quantum Loon comes this year, featuring greater connectivity than the company's current quantum chips. IBM Quantum Kookaburra comes in 2026, bringing the ability to store information and process it with an attached processing unit. And IBM Quantum Cockatoo is set for 2027, allowing entanglement between modules. Starling, which will feature 200 logical qubits and 100 million quantum gates, will be built in 2028 and deliver fault-tolerance by 2029, according to IBM's roadmap.

A quantum computing leader

Plenty of companies are racing toward viable quantum computing, but IBM has two things that make it unique: a decades-long track record researching and building quantum computers, and a clear roadmap to reach fault-tolerance and true quantum advantage.

While it's impossible to predict how large of an opportunity quantum computing could be for IBM, one estimate puts the economic value generated by quantum computing at $850 billion by 2040, with the market for quantum hardware and software potentially worth $170 billion. If IBM can truly pull ahead of its rivals and deliver real-world results with its quantum computers by the end of the decade, it will be in a great position to reap the rewards of the quantum computing revolution.

IBM's valuation today looks reasonable considering the enormous potential of quantum computing. Based on the company's outlook for 2025, IBM stock trades for roughly 19 times free cash flow. While the stock isn't as cheap as it was a few years ago, IBM still looks like a solid buy. The company's hybrid cloud and artificial intelligence (AI) businesses are driving growth today, and quantum computing has the potential to drive growth in the 2030s and beyond.

Should you invest $1,000 in International Business Machines right now?

Before you buy stock in International Business Machines, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and International Business Machines wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $658,297!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $883,386!*

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Timothy Green has positions in International Business Machines. The Motley Fool has positions in and recommends Alphabet, International Business Machines, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Semiconductor giant Intel (NASDAQ: INTC) slashed its dividend in 2023 and then pulled the plug completely in 2024 amid chronic struggles and weak financial performance. The initial dividend cut helped the company preserve cash as it plowed capital into its manufacturing operations, while the dividend suspension was coupled with significant layoffs and came a few months before former CEO Pat Gelsinger was shown the door.

While Intel has a new CEO with plans to aggressively cut costs and streamline operations, the dividend is unlikely to make a comeback any time soon.

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Image source: Getty Images.

A deteriorating balance sheet

Intel has spent the past few years investing in new manufacturing facilities and new process technologies in a bid to regain its manufacturing advantage against TSMC and build out a foundry business of its own. This was always going to be a multiyear endeavor that consumed far more cash than it produced in the beginning. Even today, with the Intel 18A process marching toward volume production, the foundry business generates minimal revenue from external customers.

This heavy spending occurred just as Intel's products business hit the skids. A severe downturn in PC demand following a pandemic-era boom hurt the client computing business, as did competition from AMD. In the data center segment, strong products from AMD and a shift in spending toward AI accelerators knocked down revenue and decimated profits.

The net result of all of this is a balance sheet that has taken a beating. While Intel had around $21 billion in cash and short-term investments at the end of the first quarter of 2025, it also had more than $50 billion in debt. Intel's debt load has been climbing for the past 15 years, rising from next to nothing in 2010 to nearly $30 billion in 2020 and topping $50 billion today.

INTC Total Long Term Debt (Annual) data by YCharts.

Intel has plenty of cash on hand but needs a big buffer to continue its manufacturing investments and weather an uncertain economic environment. Until Intel's debt is reduced, a dividend is highly unlikely.

Profit and cash-flow troubles

Intel's products business, which includes all its first-party PC CPUs, server CPUs, and other products, is still profitable. In the first quarter, the products business generated an operating income of $2.9 billion on $11.7 billion in revenue.

The problem is the foundry business, which currently generates nearly all its revenue internally from Intel's products business. The foundry business registered an operating loss of $2.3 billion and less than $1 billion in revenue in the first quarter. Add in corporate operating expenses, and Intel produced a total operating loss of $301 million for the quarter.

The cash-flow situation looks much worse since Intel's capital spending is vastly outpacing depreciation, thanks to its manufacturing investments. Intel poured more than $5 billion into capital expenditures in the first quarter alone, leading to an adjusted free-cash-flow loss of roughly $3.7 billion. At the moment, Intel's products business isn't generating nearly enough cash to fund the company's ongoing investments.

Intel is spinning off and selling off non-core businesses, including the recent sale of a majority stake in Altera, and it reduced its target for gross capital spending in 2025 by $2 billion to $18 billion. Those moves will help the situation, but a rebound in the products business and an influx of external revenue in the foundry business are going to be necessary for the company to even consider restarting its dividend.

The dividend could return, but it will take a while

Under new CEO Lip-Bu Tan, Intel is planning to slash costs, remove layers of middle management, and downsize its workforce. The company is also putting a renewed focus on engineering and listening to its customers, the latter of which will be critical to winning major foundry customers. Intel's first chips using the Intel 18A process will start shipping by the end of this year, potentially ending AMD's manufacturing lead by catching up to TSMC in terms of performance and efficiency.

While Intel's turnaround could gain traction in 2026, the dividend isn't likely to return for some time. Intel has a lot of work left to do to stabilize and then grow its CPU market share and still needs to win major foundry customers and ramp up external foundry revenue.

Once all that happens, improving the balance sheet and reducing debt should be the top priority. The dividend is probably not a priority right now, and it will likely be years before the company seriously considers restarting dividend payments to investors.

Should you invest $1,000 in Intel right now?

Before you buy stock in Intel, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Intel wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $658,297!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $883,386!*

Now, it’s worth noting Stock Advisor’s total average return is 992% — a market-crushing outperformance compared to 172% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

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Timothy Green has positions in Intel. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: short August 2025 $24 calls on Intel. The Motley Fool has a disclosure policy.

Here's our initial take on Five Below's (NASDAQ: FIVE) fiscal 2025 first-quarter financial report.

Key Metrics

Rising Transactions, Operating Income, and Earnings

Five Below reported solid first-quarter results despite a complex macroeconomic backdrop. Comparable sales rose by 7.1%, driven largely by an increase in transactions, while total revenue jumped 19.5%. The company opened 55 new stores during the quarter, and those stores are performing well, according to Five Below CEO Winnie Park.

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The retailer is navigating tariffs and global economic uncertainty, and so far, those potential headwinds haven't had much of an impact on Five Below's business. Operating income and adjusted earnings per share rose significantly from the first quarter of fiscal 2025, with the latter beating analyst expectations.

For the fiscal second quarter, Five Below expects to open around 30 net new stores and produce comparable sales growth between 7% and 9%. Total revenue should come in between $975 million and $995 million, while adjusted EPS is expected between $0.50 and $0.62.

For the full fiscal year, the company sees comparable sales growth between 3% and 5%, 150 net new stores, revenue between $4.33 billion and $4.42 billion, and adjusted EPS between $4.25 and $4.72.

Image source: Getty Images.

Immediate Market Reaction

Share prices of Five Below were up about 2% in after-hours trading on Wednesday soon after the release of the first-quarter report. The company beat analyst estimates for revenue and adjusted EPS, and its second-quarter outlook looked solid. However, the full-year outlook called for slower comparable sales growth, which could be keeping the stock price in check.

What to Watch

While tariffs and economic uncertainty aren't having much of an impact on Five Below right now, the situation is fluid. The company sourced about 60% of its purchases from domestic vendors in 2024, although it's difficult to know how exposed those vendors are to tariffs. The timing and makeup of trade deals the U.S. strikes with other countries will have an impact on Five Below's costs, and consumer behavior remains a wildcard. Investors should listen to Five Below's earnings call on Wednesday evening for more information from management on how tariffs are affecting the full-year outlook.

Helpful Resources

• Full earnings report
• Investor relations page

Should you invest $1,000 in Five Below right now?

Before you buy stock in Five Below, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Five Below wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $668,538!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $869,841!*

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Here's our initial take on MongoDB's (NASDAQ: MDB) fiscal 2026 first-quarter financial report.

Key Metrics

Winning more customers

MongoDB added 2,600 net new customers in the first quarter of fiscal 2026, bringing its total customer count for the platform-agnostic, document-oriented database, software provider to approximately 57,100. That's the largest quarterly customer gain in six years. Most of those new customers are using Atlas, the company's managed database offering, while the rest opted for MongoDB Enterprise. Atlas revenue grew by 26% year over year in Q1 and accounted for 72% of overall Q1 revenue.

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Image source: Getty Images.

MongoDB's profitability improved substantially in Q1. While the company still posted a net loss according to generally accepted accounting principles (GAAP), that loss was more than cut in half from the prior-year period. Non-GAAP earnings per share nearly doubled, and free cash flow soared by 74%. MongoDB kept its sales and marketing spending roughly flat year over year and cut its general and administrative spending, which partially offset a rise in R&D spending and led to a small overall increase in operating expenses.

Along with its Q1 report, MongoDB announced an additional $800 million has been authorized for share repurchases. This brings the total authorization to $1 billion. Looking ahead to Q2, MongoDB expects revenue between $548 million and $553 million, and adjusted earnings per share (EPS) between $0.62 and $0.66.

Immediate market reaction

Share prices of MongoDB shot up 12% in after-hours trading Wednesday as investors digested the company's Q1 report. MongoDB beat analyst expectations across the board, and the major profitability improvements combined with solid Atlas growth gave investors plenty to like. MongoDB stock was down about 14% year to date going into the report, so if this rally holds, the stock should regain much of that lost ground on Thursday.

What to watch

MongoDB sees a big opportunity to ride the artificial intelligence (AI) wave and position its platform as an easy choice for companies looking to modernize applications. The company acquired Voyage AI, an AI model developer, earlier this year, a move aimed at helping customers build AI-powered applications. MongoDB also recently launched a public preview of its Model Context Protocol Server, enabling developers to interact with databases using natural language. With no end in sight to the AI boom, MongoDB is set to benefit from soaring AI demand.

Helpful resources

• Full earnings report
• Investor relations page

Should you invest $1,000 in MongoDB right now?

Before you buy stock in MongoDB, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and MongoDB wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $668,538!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $869,841!*

Now, it’s worth noting Stock Advisor’s total average return is 789% — a market-crushing outperformance compared to 172% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

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Timothy Green has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends MongoDB. The Motley Fool has a disclosure policy.

Semiconductor giant Intel (NASDAQ: INTC) has a new CEO ready to shake up the company after years of disappointing results. Intel has been losing market share to AMD in its core CPU businesses, struggling to gain a foothold in the AI accelerator market, and pouring billions into new factories and manufacturing technology. That heavy spending supports the company's effort to become a major foundry, making chips for others and competing directly with TSMC.

Intel is making progress on the foundry front. The Intel 18A manufacturing process, the capstone of its original "five nodes in four years" plan, is fully developed and now in limited production. The challenge for Lip-Bu Tan, Intel's new CEO, will be to scale up production while winning enough new clients to push the foundry toward eventual profitability.

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Tariffs are a mixed bag for Intel

As of Tuesday, the sweeping global tariffs announced by President Donald Trump exclude semiconductors. TSMC is based in Taiwan, although it now has some manufacturing facilities in the U.S. Essentially every major chip designer, including AMD, Nvidia, Apple, and countless others, relies on TSMC to manufacture their cutting-edge chips.

The Trump administration has indicated that tariffs would eventually apply to semiconductors as well, although the timing and severity is up in the air. If this happens, an argument could be made that Intel's foundry could benefit as potential customers gain a stronger incentive to choose the Intel 18A process. However, there are some important caveats.

First, the tariffs already include semiconductor manufacturing equipment, which will make it more expensive for Intel to expand its U.S. manufacturing facilities. According to Intel, a typical semiconductor manufacturing facility requires around 1,200 multimillion-dollar tools. With U.S. tariffs set to hit nearly every country around the world, scaling up the Intel 18A process and bringing future processes to production is going to become even more capital intensive.

Second, tariffs could boost prices and reduce demand for PCs and servers. That would hit Intel's product business, which is already struggling to regain lost market share from AMD. PC sales are already sluggish following a pandemic-era boom, and the situation could get much worse if these tariffs trigger an economic slowdown.

Third, Intel itself is a significant customer of TSMC. The manufacturing of Intel's Lunar Lake and Arrow Lake PC chips is largely outsourced to TSMC, so a tariff on semiconductors from Taiwan would directly hit Intel's PC chip business. Panther Lake, Intel's next-generation laptop CPU, will switch to the Intel 18A process. However, Panther Lake won't arrive until the end of the year.

Intel's latest server CPUs use the Intel 3 process, but production of that process node is being shifted to Ireland from Oregon. Under the current tariff plan, the Republic of Ireland will be hit with a 20% tariff.

Tariffs aren't a reason to buy Intel stock

While there are a few reasons to bet on a comeback for Intel, particularly with a new CEO at the helm and the foundry business on the cusp of proving itself, tariffs likely aren't one of them. Intel may see some positives if tariffs are extended to include semiconductors from Taiwan, but there will be plenty of negatives as well. The potential for a drop in demand for PC and server CPUs could put significant pressure on Intel's finances, and its dependence on TSMC for some manufacturing leaves it exposed to higher costs.

Intel's shift to U.S.-based manufacturing for Panther Lake will reduce its dependence on TSMC, although it's impossible to tell whether tariffs will still be in place at the end of the year. If chip designers are assuming that tariffs will ultimately be a short-lived experiment, they may not jump at moving production from TSMC to Intel. There's a lot of uncertainty.

For Intel, tariffs look like a net negative, at least for now. Betting on a turnaround can still make sense, but tariffs seem likely to make Intel's comeback more difficult.

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Timothy Green has positions in Intel. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Intel, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: short May 2025 $30 calls on Intel. The Motley Fool has a disclosure policy.

While International Business Machines (NYSE: IBM) generates most of its revenue from software and consulting services, the company's hardware business is still an important piece of the puzzle. IBM's mainframe systems, known for their extreme reliability, remain a workhorse in certain industries. Of the world's 50 top banks, 43 use IBM's mainframes to handle mission-critical workloads.

Every two to three years, IBM refreshes its mainframe lineup with a new model that brings improved performance and expanded capabilities. IBM works with its clients to push the mainframe in the right direction, and lately, that direction has been toward artificial intelligence (AI).

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A mainframe with AI superpowers

IBM announced its latest mainframe system, the z17, on Tuesday. The z17 is powered by the IBM Telum II processor, which the company detailed last year.

In addition to general performance improvements over its predecessor, the Telum II features an on-chip AI accelerator capable of churning through 450 billion AI inferencing operations per day. Response times are around one millisecond, making the system ideal for use cases that need near-instant results. One example IBM noted was running a credit card fraud-detection model in real time as transactions are being processed.

On top of the AI capabilities of the Telum II processor, IBM plans to launch its Spyre Accelerator in the fourth quarter of this year. Spyre is an AI expansion card that can be plugged into the z17 to provide more computational horsepower. With Spyre, clients will be able to make use of AI assistants and agents built on IBM's Granite models, bringing generative AI to the mainframe.

Following up a strong mainframe cycle

Each time IBM launches a new mainframe system, sales temporarily boom as clients upgrade from older models. The z16, which is nearly three years old at this point, delivered a strong product cycle for IBM.

As of the end of the fourth quarter of 2024, the z16 was the most successful mainframe cycle in company history. In terms of MIPS, a metric IBM uses to measure a mainframe system's processing power, the z16 install base increased by about 30% over its predecessor.

The z17 launches in June, so IBM will see a meaningful increase in mainframe revenue during the second half of the year. In the third quarter of 2022, the first full quarter of z16 availability, mainframe revenue soared 88% year over year. IBM doesn't break out mainframe revenue directly, but hybrid infrastructure, which includes mainframes and other hardware products, generated revenue of $8.9 billion in 2024.

Beyond an increase in hardware sales, the new mainframe can drive software and consulting sales, particularly related to AI. IBM has booked more than $5 billion worth of generative AI-related business so far, and the bulk of that came from consulting signings. As mainframe clients upgrade to the AI-enabled z17, other parts of IBM could get a boost.

The new mainframe is one reason IBM was able to guide for revenue growth of more than 5% this year, an acceleration, compared to 2024. Achieving that outlook could prove challenging, considering the recent U.S. tariffs and the potential for a broad economic slowdown. However, IBM's mainframes are mission-critical systems, and the z17 delivers AI capabilities that are likely to be in demand from its clients.

With the z17, IBM continues to evolve the mainframe and maintain its relevance. With a focus on AI, the z17 should drive another strong mainframe cycle for IBM.

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Timothy Green has positions in International Business Machines. The Motley Fool has positions in and recommends International Business Machines. The Motley Fool has a disclosure policy.