The price of Intel Corporation (INTC) stock is plunging on Friday, with shares trading as much as 8% lower in morning hours. This is a classic knee jerk overreaction, plain and simple.
Intel investors looking at the numbers from Thursday’s fourth-quarter report may find today’s selloff especially odd considering the chipmaker cruised past both revenue and earnings per-share expectations last quarter.
But as with so many selloffs during earnings season, the market is far more worried about the coming quarter than the last one.
While Q1 guidance was on the soft side, Intel stock doesn’t deserve to take a dive like this. Let’s take a look at the numbers and try to decipher just what Wall Street is thinking.
INTC: Is Q4 Chopped Liver?
If investors would have merely heard Intel’s fourth quarter results yesterday, they would’ve been elated. While revenue grew just 1% year-over-year, the $14.9 billion haul still exceeded the $14.8 billion Wall Street expected from the chipmaker.
Similarly, INTC earnings were flat year-over-year, but EPS of 74 cents easily topped the 63 cents analysts were looking for.
It’s the chipmaker’s Q1 guidance that has people ditching INTC stock in droves. Intel guided for revenue of $14 billion, plus or minus a cool $500 million. Year-over-year, that would imply a growth rate of about 10% from Q1 2015 revenue figures, which came in at $12.8 billion — a pretty impressive growth rate for mature ol’ Intel.
The problem, though, is that the $14 billion figure includes results from its Altera acquisition. Stripping out the $400 million INTC thinks Altera will contribute, that brings the true midrange guidance to $13.6 billion and drags revenue growth down to just above 6%. Analysts expected Intel to take in $13.86 billion in the quarter, so yes, the guidance is a little soft.
I have two words to say about that: So what?
Contrarian investors — or value investors with a knack for patience and the requisite intestinal fortitude — should take a long look at INTC stock in the wake of today’s bloodbath. Mr. Market seems to have entirely forgotten the fact that Intel is the world’s preeminent chipmaker.
Intel, the most valuable semiconductor company on earth, is pivoting away — rather successfully, might I add — from its historically PC-driven model. In fiscal year 2015, the Internet of Things, memory and data center segments accounted for 40% of revenues and 60% of operating margins.
The memory division alone should be enough to excite INTC stock owners.
Memory & Market Gyrations
The groundbreaking 3D XPoint technology, co-developed with Micron (MU), represents the company’s greatest innovation in years. Perhaps decades. Intel proudly called 3D XPoint “a major breakthrough in memory process technology,” and hailed it as “the first new memory category since the production of NAND flash in 1989.
Some additional bragging points, courtesy of its late-July swelling-with-pride press release:
- “Intel and Micron begin production on new class of non-volatile memory, creating the first new memory category in more than 25 years.
- New 3D XPoint™ technology brings non-volatile memory speeds up to 1,000 times faster1 than NAND, the most popular non-volatile memory in the marketplace today.
- The companies invented unique material compounds and a cross point architecture for a memory technology that is 10 times denser than conventional memory2.
- New technology makes new innovations possible in applications ranging from machine learning to real-time tracking of diseases and immersive 8K gaming.”
That’s quite an impressive array of claims, to say the least. If true, 3D XPoint could reap rewards for INTC stock owners for years to come. Intel’s memory segment is already outperforming, boasting YoY revenue growth of 10% in Q4, more than 1.5 times the company’s overall growth rate, and is up 21% for the full year.
I also expect INTC stock to benefit from market volatility in 2016, with investors shedding high-risk small- and mid-cap stocks with high multiples for massive, proven companies with mature businesses and some cash in the bank. INTC is all of those things, and on top of that it trades for just 11.5 times forward earnings and pays a 3.2% dividend yield.
Wall Street may be sour on Intel today (for some very shortsighted reasons), but it’ll be back in force later this year. If you can stomach going against the tide of popular opinion, INTC stock is as solid a buy now as it ever has been.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
