Intel Stock: A Smart Buy?

INTC: Intel logo

Up just 30% since the March lows of this year, at the current price of around $58 per share, we believe Intel stock (NASDAQ: INTC), a computer chip technology manufacturer, has room for further upside. Intel stock has jumped from $44 to $58 off its recent bottom, significantly less than the S&P which increased by around 70% from its lows. Further, the stock is still down around 15% from its early 2020 high of $69. We believe that Intel’s stock could rise back to this level, with an upside of almost 20%, driven by expectations of rising demand. Our dashboard What Factors Drove 26% Change In Intel Stock Between 2017 And Now? has the underlying numbers behind our thinking.

The stock price rise since the end of 2017 came due to a 135% rise in EPS from $2.04 in FY 2017 to $4.77 in FY 2019. Revenue rose around 15% from $62.8 billion to $72 billion over this period, and combined with a 91% rise in net margins, net income jumped almost 2.2x.

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Intel’s P/E (price-to-earnings) dropped from 22.6x in 2017 to 12.5x in 2019, but has since dropped to 12.2x as Apple is gradually replacing Intel chipsets with their own in-house manufactured processing chips. Further, Intel announced that the next generation of processing chips will be significantly delayed, launching in 2022. However, we believe that the company’s P/E ratio has the potential to rise in the medium term on expectations of steady demand growth and the company’s potential foray into the GPU market, thus driving the stock price higher.

Where Is The Stock Headed?

The global spread of coronavirus and the resulting lockdowns in early 2020 saw a drop in demand for semiconductors worldwide, but Intel was not significantly impacted by this. This is evident from Intel’s results for the first nine months of 2020, where revenue came in at $57.9 billion, up from $51.8 billion for the same period last year. Strong execution by the company kept expenses in check, driving EPS from $3.18 to $3.55. While we await Intel’s full-year 2020 results later this month, we believe that despite the delay in the next-generation chip series, demand for Intel’s products will stay strong, as computing device demand has risen during the pandemic. Further, Intel announced earlier in 2020, that they were looking to enter the GPU market by mid-2021 which, given the company’s legacy in the chipset market, could help them make a dent in AMD and Nvidia’s duopoly in the GPU segment. We believe that with demand continuing to rise, Intel will continue to see revenue growth in the medium term, causing profitability to rise further.

We expect this to drive up the company’s P/E multiple, and believe that Intel’s stock could gain almost 20% from current levels, to regain its early 2020 high of $69. This is based on our Intel Valuation and implies a P/E of around 14x for the stock.

While Intel stock is worth considering, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counterintuitive the stock valuation is for Amazon vs Etsy. Another example is Apple vs Microsoft.


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