Monday, January 27, 2025

Is It Time To Buy Intel?

Stocks
D

Darius Dark

article cover

Disclaimer: This is in no way financial advice. I am not a financial advisor. Do your own research before making any final decision on investments.


Shares in the previous leader of CPU technology Intel Corporation (Ticker: INTC) have gone nowhere but down over the last few years. Is it time to buy the dip? Or is this enormous sell-off justified? Let’s take a look:

Who are Intel?

Intel Corporation is an American technology company designing, manufacturing, and selling computer components and related products to both business and consumer markets. It is one of the world’s largest semiconductor chip makers, supplying microprocessors for most manufacturers of computer systems with it’s largest customers being Dell, Lenovo Group, and HP.

A visual depiction of what is being written about

Intel since the 1980s has seen dominance over the chip industry, with it’s famous ‘Wintel’ partnership with Microsoft propelling the company to great heights. Recently however the company has been losing market share fast, with competition overtaking the company’s outdated technology. Today we will look at whether Intel can reclaim it’s throne, or if the company is destined for failure.

The Negatives

Delayed Advancements

In the past Intel prided itself on leading the industry in semiconductor process technology, but yield issues and the increasing complexities of scaling transistor layouts caused multiple setbacks. They repeatedly delayed the transition from 14nm to 10nm chips. The same then happened during the transition from 10nm to 7nm.

A visual depiction of what is being written about

These manufacturing issues postponed product launches, and eroded Intel’s once-unchallenged leadership in their sector. During these delays, competitors like TSMC maintained an aggressive roadmap and consistently delivered cutting-edge advancements. As a result, Intel found itself struggling to keep pace in both client and data centre markets, while also missing opportunities to capture business from high-growth segments that demanded the latest technology.

Pressure From AMD

AMD’s dramatic resurgence in the CPU market, driven by it’s Zen architecture and subsequent generations, intensified pressure on Intel. By leveraging TSMC’s advanced manufacturing, AMD rapidly improved CPU performance, increasing core counts and enhancing power efficiency.

This allowed AMD to position its Ryzen and EPYC processors as cost-effective, high-performance alternatives to Intel’s CPUs. As a result, AMD gained momentum with both consumers and data centres, chipping away at Intel’s dominant market share. This shift in dynamics forced Intel to rethink its product roadmap and pricing strategy to respond to AMD’s innovations and growing customer base, however the response thus far has been lacklustre to say the least.

Execution and Strategy Concerns

Intel’s repeated execution problems and strategic shifts in recent years have eroded investor confidence and dramatically slowed the company’s momentum. The repeated delays in advancing manufacturing nodes and Pat Gelsinger’s exit from the company have shown there are deeper issues in Intel’s product roadmap and organisational focus.

A visual depiction of what is being written about

Public acknowledgments of these shortcomings further fuelled concerns about Intel’s ability to sustain itself in the incredibly competitive semiconductor industry. While Intel has ambitious plans to modernise its fabrication capabilities and expand into the foundry business, the company still faces the challenge of balancing massive capital investments with the need to re-establish technology leadership, causing massive uncertainty around its long-term strategic direction.

These factors have all contributed to the company’s market cap more than halving last year. With such a massive decline is there a chance for Intel to turn it around? Intel may certainly have massive value contained within, so let’s take a look at the positives.

The Positives

Incredibly Cheap Valuation

With all of Intel's issues during 2024, from missing out on the Artificial Intelligence GPU boom, to slowing demand for many of it’s new and existing chip rollouts, to higher-than-expected operating costs, the share valuation has become incredibly cheap. INTC is now the least expensive of the large semiconductor businesses for new investors when looking at the company’s potential Earnings during 2025 and 2026. Below is a table of analyst estimates for total sales and ongoing cash earnings.

A visual depiction of what is being written about

The stock has now priced in a terrible future through its valuation. Good news in the future is not really expected by Wall Street, which could translate into large share price gains. When sentiment around a stock is so overwhelmingly negative any good news can dramatically increase the share price, and I think we could definitely see this with Intel at some point this year.

Looking at the Earnings and Cash Flow disasters during 2024, Intel does not look even remotely cheap. Last year was definitely a horrible one for growth and margins at the company. However, if we try model the valuation on stable revenues, successful restructuring, and a more successful foundry business (if anti-China and Asia import tariffs become new government policy under Trump), Intel will most likely not be cheaper than $20 a share in the future.

The company’s Price/Sales ratio is currently 1.7x, incredibly low for a technology company in general. It’s Price/Book value is also 1.3x, a record low for the company! This could definitely be a buying opportunity.

Buyout Potential

There have recently been rumours surrounding a possible Intel buyout. The report cited Elon Musk as a potential buyer, which has been supported by Dylan Patel, a well-known semiconductor analyst.

A visual depiction of what is being written about

This buyout deal could also involve Qualcomm and Global Foundries. The news was well received by the market, with Intel rising over 9%. The last time we saw this kind of renewed interest in the stock was back in September when Qualcomm began to show interest.

A full buyout would be quite good news for Intel. Generally speaking, buyouts also reward current shareholders. A takeover deal like this would likely come at a premium to book value, perhaps somewhere around 20%-30%. Even after the rally, there is a lot of upside left if this buyout was to take place.

More importantly though, a buyout would be great news for Intel because of it’s recent operational turmoil. This is a company that has completely lost the confidence of the market. A buyout is perhaps the quickest way for Intel to actually see its valuation truly reflect the worth of its assets and future potential.

Strong Brand and Existing Customer Base:

Intel’s long history as a semiconductor leader has given the company a reputable brand and a broad, deep customer base across multiple segments. From global PC manufacturers and data centre providers to enterprise IT departments, many rely on Intel’s products and ecosystem support. This creates high barriers to switching.

A visual depiction of what is being written about

The company has definitely done a good job of cementing it’s brand’s status in the consumer space as well. This longstanding relationship and trust will provide Intel with a steady revenue stream during the current period of strategic transition. Even as competition increases, Intel’s established reputation and customer loyalty can help it potentially retake it’s spot as a leading player within the semiconductor market.

There is definitely upside potential in Intel, but is it enough to consider investing? Let’s take a look:

The Conclusion

Intel is definitely an interesting company to look at as a value investor. It has such a rich history and I am very interested to see if they can re-invent themselves and come out of the recent troubles as a better company.

For now however, I do not think the risks outweigh the rewards with Intel, so I will not be buying. I want to buy companies which I have a high conviction in and make them a large part of my portfolio. To me Intel is a toss-up, and until we know they are going to begin to grow again I don’t think it is worth putting any money in to.

Thank you for reading! Have a Great Day.

Back to Blogs

Get started for free

Start making better investment decisions today

Join thousands of investors who trust Valuemetrix to help them make better investment decisions.

Already have an account? Log in