At $33, Intel Stock Doesn’t Look Like A Bargain
Intel stock (NASDAQ: INTC) has fared relatively well this year, rising by about 21% since early January. A couple of macro factors such as cooling inflation and a slower pace of interest rate hikes by the Federal Reserve have helped beaten-down technology stocks like Intel, which still remains about 50% below its 2021 highs. There have been some stock-specific developments, as well. The company indicated that some of its upcoming data center chips including the Sierra Forest & Granite Rapids were on track for a 2024 launch. This is a positive sign for a company that has fallen behind with its pipeline due to production issues. Intel is also cutting back on its costs. The company plans $3 billion in cost reductions in 2023 and up to $10 billion a year in cost cuts by the end of 2025. Investors have also largely accepted Intel’s move to slash its dividend by close to 65% in February to better manage its cash position. However, despite the recent optimism, we remain negative on Intel stock.
Intel is losing out in the data center segment, which is one of its most lucrative product lines, falling behind its main rival Advanced Micro Devices whose Genoa server chips offer a better price-to-performance tradeoff versus Intel’s current Sapphire Rapids server processor. Moreover, Intel’s products are based on an older 10-nanometer node due to manufacturing delays, compared to AMD’s latest processors which are built using a 5-nm process. A smaller process node enables better performance and higher power and could indicate that Intel could continue to lose out in the server space in the near term. The PC market is also facing challenges, with PC sales down by about 29% in Q1 2023. Moreover, research firm IDC projects a 10.7% decline in unit sales to 260.8 million units for 2023. This is likely to impact Intel, which derives about half its total revenues from the PC space. Intel’s valuation also isn’t exactly attractive. The company trades at about 17x consensus 2024 earnings, which is a relatively rich valuation given the multiple uncertainties Intel faces. We value Intel stock at about $27 per share, which is about 17% below the current market price. See our analysis of Intel Valuation for more details on what’s driving our price estimate for Intel.
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