INTC with Nobias technology: Can Intel’s Ambitious Growth Plans Reverse This Stock’s Recent Underperformance Trend?
The semiconductor space has been one of the most popular places to invest in recent years because of the digitalization of society and the world’s economy. Computer chips are ubiquitous in today’s world. And, as we venture further and further into the digital age (as a society and species) this trend isn’t likely to change anytime soon.
With that said, the VanEck Semiconductor ETF (SMH) has been a wonderful investment vehicle for people in recent years. The SMH is down 12.41% on a year-to-date basis in 2022 as the market rotates out of growth and into more defensive value plays; however, during the trailing 12 months, this fund is up 14.57%, during the last 5 years, the SMH is up 252.51%, and over the last decade, this fund is up 686.28%.
However, not all semiconductors are created equally. Intel (INTC), which was a former leader in this space and widely considered to be a market darling, has fallen off of its pedestal. INTC shares are down 21% during the last year and they’ve drastically underperformed their peers over the last 5 and 10-year periods, posting gains of 30.6% and 78.69%, respectively.
Intel recently experienced a management change and the company has embarked upon ambitious plans to return to growth. Therefore, we wanted to highlight the recent opinions expressed by authors/analysts which the Nobias algorithm deem to be credible, with regard to whether or not investors should consider buying into INTC’s recent dip.
INTC Feb 2022
The Value Portfolio, a Nobias 5-star rated author, recently published an article highlighting several catalysts that Intel has to unlock long-term value. They highlighted the investments that Intel is making into the foundry business, saying, “Intel has announced IDM 2.0 with an interest to build a foundry business. The company has announced a $20 billion investment into new Arizona factories and a $3.5 billion in New Mexico.”
The Value Portfolio continued, “There's no guarantee of success here, but especially if the company passes TSMC in 2025, it could be a massive business. Evident of this is that TSMC is twice as big as Intel and only offers foundry services. More so, another important part of this business is that there's demand for chips in all nodes, much of the current shortage is legacy nodes. That means the business could generate reliable and growing cash flow.”
However, this ambitious plan to become a leader in the global foundry business does not come without risks. They touched upon the downside potential of these multi-billion investments saying, “Intel's most substantial risk, in our view, is that the company has fallen behind its largest peers, TSMC and Samsung. The company has set its target of regaining the crown by 2025, however, it's struggled for the last several years, and this is a lofty target. Until the company actually releases 2 nm CPUs in 2024-2025, it remains to be seen whether the company will hit its targets.”
In a recent article, fellow Nobias 5-star rated author, Harsh Chauhan also touched upon the risks involved with attempting to comete with global foundry giant, Taiwan Semiconductor (TSM) saying: “TSMC has a capital expenditure (capex) budget of $40 billion to $44 billion for this year, which points toward a huge increase over its 2021 capital spending of $30 billion. What's more, TSMC's 2022 capital expenses are way higher than Intel's ( INTC 2.12% ) estimated outlay of $25 billion to $28 billion for this year. This doesn't look like good news for Intel, as there was a massive spending gap between the two companies in 2021 as well, given Chipzilla's capital spending budget of $19 billion to $20 billion last year.”
However, the foundry investments that management is making aren’t the only upside catalysts for this beaten down stock, in The Value Portfolio’s eyes. In their article, they touched upon recent news that Intel was looking to spin off potentially highly valued assets to unlock value for shareholders. In December of 2021, news broke that Intel was looking to spin off its Mobileye assets. The Value Portfolio highlighted this news saying: “Intel initially acquired Mobileye in 2017 in a $15 billion acquisition. Since then the company has become an even more dominant force in the self-driving vehicle industry. The company expects 40% more 2021 revenue versus 2020 revenue and continued growth. As a result, Intel has announced the intention to take Mobileye public in mid-2022.
The IPO details are fuzzy, however, analysts see a valuation as high as $50 billion (or 25% of Intel's valuation). Given the company's strong positioning and the significant amount of hype around self-driving valuation, we could see it fetching a higher valuation. This could represent a way for Intel to unlock significant value and earn cash.” Even though Chauhan acknowledges the risks of attempting to compete in the foundry landscape, he also recently published a bullish article on Intel which touched upon other potential growth markets that Intel could tap into, putting a spotlight on the GPU space within the broader semiconductor market. GPU chips, or Graphics Processing Units, are semiconductors that benefit from the strong secular tailwinds that exist in the gaming industry.
High growth companies NVIDIA (NVDA) and Advanced Micro Devices (AMD) dominate this space. However, Chauhan believes that Intel can compete for market and potentially generate billions in revenues with its own GPU ambitions. In his recent article, Chauhan wrote, “Intel's Arc GPUs are equipped with ray-tracing technology. They also sport artificial intelligence-powered resolution upscaling and a proprietary Deep Link technology that Intel says can accelerate many workloads if the computer also features a compatible Intel processor. These features indicate that Intel is serious about making a dent in the discrete GPU market, as its cards are packed with technology on par with rivals.”
With regard to the competitive landscape in the GPU industry, Chauhan wrote, ”According to Jon Peddie Research, Nvidia commanded 83% of this space in the third quarter of 2021, while AMD was left with the remaining 17%. Nvidia has dominated the graphics card market with an iron hand thanks to its robust supply chain and competitive RTX 30 series cards.” Cutting into this duopoly is a daunting task; however, the risks are clearly worth the rewards. Chauhan continued, “After all, Jon Peddie Research estimates that the discrete GPU market could be worth $54 billion in 2025 as compared to $23.6 billion in 2020.”
Chauhan concluded his piece saying, “In all, Intel seems to be entering the GPU market on a promising note. If the chipmaker can corner even 10% of this market in the next couple of years, it could add billions of dollars to its revenue that may act as a catalyst for the tech stock in the long run.” And, while much of the highlights surrounding this company have surrounded its future growth prospects, there are other credible authors that we follow who appear to be bullish on Intel stock because of the value it presents and the shareholder returns that it continues to provide.
The Dividend Diplomats, a Nobias 4-star rated author, recently published an article highlighting two of their favorite dividend paying stocks for the month of February; one of which was Intel. “Intel has been crushed due to supply chain issues and chip shortages. The short-term outlook for Intel isn’t looking that great; however, the company is taking steps to address this in the long run. Intel recently announced a $20 billion new chip manufacturing facility in Ohio and plans to invest significant dollars in their Arizona facility. The moves will take time to bear fruit; however, in the long run, this will help Intel avoid future shortages by reducing its exposure to the global supply chain.”
When making investments for their family, the Dividend Diplomats said they they look for companies to pass 4 primary screens: a “Price to Earnings Ratio Less than the S&P 500”, a “Dividend Payout Ratio Less than 60%”, and “History of Increasing Dividends.” Regarding these screens when it comes to Intel shares, the Dividend Diplomats say:
Price to Earnings Ratio: 13.45x. The stock is trading at less than half the valuation of the S&P 500. Check!”
“Dividend Payout Ratio: 41.24%. A very strong payout, perfect ratio. There is still plenty of room to continue increasing its dividend going forward.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
“History of Increasing Dividends: Intel just announced a 5% increase to its dividend. Despite the negative news, Intel still said “hey look at us, this isn’t gong to stop us from increasing our dividend.” After this last dividend increase, the company has increased its dividend for 8 consecutive years. The company’s 5 year average dividend growth rate is just under 6%.”
With that all in mind, they concluded their bullish report noting that they added to their personal position during INTC’s recent sell-off. Overall, when looking at the community of credible authors tracked by the Nobias algorithm (only those with 4 and 5-star ratings) we see that the sentiment lean is decidedly positive, with 90% of recent reports expressing a “Bullish” outlook on shares.
Furthermore, when looking at the credible Wall Street analysts that our algorithm tracks, we see that relative to the stock’s current share price of $47.71, the average analyst share price target attached to INTC shares of $58.38 represents upside potential of 22.36%.
In short, the communities of credible authors and analysts are both bullish on INTC shares, meaning that this is a company that investors looking for exposure to the technology sector may want to consider owning moving forward.
Disclosure: Of the stocks mentioned in this article, Nicholas Ward is long INTC and NVDA. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
Additional disclosure: All content is published and provided as an information source for investors capable of making their own investment decisions. None of the information offered should be construed to be advice or a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. The information offered is impersonal and not tailored to the investment needs of any specific person.
Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.