Intel Corporation (INTC) Is Dominating the Digital Space

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Intel Corporation (NASDAQ:INTC) has been on a real tear, up 13% in the last three months. With a new set of gaming chips just on the horizon, Intel stock seems to be in a good place right now.

Intel Stock: INTC Is Dominating the Digital Space

But as the PC market continues to shrink, friction between INTC and companies like International Business Machines Corp. (NYSE:IBM) and Advanced Micro Devices, Inc. (NASDAQ:AMD) is heating up fast — which is why some investors are concerned that Intel’s stranglehold on the computer space is loosening.

Not unlike Apple Inc. (NASDAQ:AAPL), INTC is the kind of company with investment logic that is geared less toward aggressive market disruption and more toward its ability to maintain its lofty position.

That’s why it’s actually a dividend play now, generating a reliable income stream for its investors. For years, the bull case for Intel stock has been defensive: how well can Intel, as the dominant player, keep all of its rivals from evolving into serious competitive threats?

So when INTC reaches down to pay $350 to $400 million for what amounts to a pre-revenue start-up, its goal isn’t to disrupt the status quo, but to harden it, locking the real disruptors out.

Intel already owns 90% of the market share when it comes to CPUs and is a factor in 91% of the top high-performance computing deployments worldwide. Basically, if it’s bigger than Microsoft Corporation‘s (NASDAQ:MSFT) Xbox, INTC owns the space and Nvidia Corporation (NASDAQ:NVDA), AMD and IBM are effectively tourists.

The Primary Advantage of INTC Stock

Unfortunately for INTC, its dominance stops at that point. It got crowded off the Xbox a decade ago and was never implemented into Nintendo Co., Ltd (ADR) (OTCMKTS:NTDOY) or Sony Corp (ADR) (NYSE:SNE) consoles, where specialized AMD graphics rendering rules. It has also withdrawn from mobile CPUs.

So its real competitive advantage remains in high-performance computing. That space is growing fastest at the top at 10% to 11% per year, but that isn’t enough to move the needle on its own for a giant like INTC. The strategic key for every company in this space is to supply a bigger piece of every high-end machine.

While Intel is already in nine out of 10 of these supercomputers, it’s only capturing a fraction of the revenue because these computers tend to be hybrid best-of-breed designs. When you’re building a supercomputer, you typically start with an INTC processor, and then maybe add another IBM processor or an NVDA graphics accelerator for the truly demanding work. NVDA graphics cards are wildly popular and growing fast enough that it could eventually start nudging into Intel’s space.

Still, Intel stock looks like it’s going to remain solid over the long-term. Its valuation is a bit rich right now, but given its 3% yield and 7% to 9% annual growth, it’s still a better play than Microsoft or Cisco Systems, Inc. (NASDAQ:CSCO), for example. We may even see its current strategy — doubling down on high-performance computers — unlock some real innovation again, in which case growth ramps up and INTC stock investors cheer.

Hilary Kramer is the editor of GameChangersBreakout Stocks Under $10High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/08/intel-stock-intc-dominating-digital-space/.

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