Back in the mid-1990s, Intel Corporation’s (NASDAQ:INTC) CEO Andrew Grove published the iconic book, Only the Paranoid Survive: How to Exploit the Crisis Points That Challenge Every Company. He showed how to adapt to wrenching technological change and effectively conquer the competition. Because of this, Intel stock was a standout winner from the 1970s through to the 1990s.
Unfortunately, since Grove departed in 1998, INTC has lacked the “paranoid” attitude. A prime example of this is the company’s failure to capitalize on the big-time opportunity of mobile.
During the past decade, Intel stock has gained only 60%, while competitors, Microsoft Corporation (NASDAQ:MSFT) has logged a return of 107% and Oracle Corporation (NYSE:ORCL) have logged returns of 107% and 104%, respectively.
With this in mind, can things get back on track for INTC stock? It’s still far from clear. For the most part, it seems that Intel stock has been mostly playing a game of catch-up. And this is often not a winning strategy.
Just look at the market for artificial intelligence. It’s certainly a massive market opportunity, as seen with companies like Apple Inc. (NASDAQ:AAPL), MSFT and Amazon.com, Inc. (NASDAQ:AMZN) with their whiz-bang virtual assistants. It seems like the next phase for technology is for crunching huge amounts of data to make better decisions — not just to store things or do routine processing.
INTC Stock Needs a Boost From AI
The nagging problem for INTC stock is that Nvidia Corporation (NASDAQ:NVDA) has the main advantage right now in AI. By leveraging its sophisticated GPU systems, the company has been on a nice growth ramp.
And the applications of its systems go well beyond just business purposes. Keep in mind that NVDA recently signed an agreement with the National Cancer Institute to leverage its chips to help fight cancer.
Wall Street is certainly excited about the opportunities. For the year, NVDA stock is up a sizzling 181% and the market cap is now at $50 billion.
As for INTC — whose stock is up about 2.5% for the year — the company has only recently made a move into the market, with the acquisitions of Nervana Systems (a developer of machine learning applications) and Altera (a long-time chipmaker of FPGAs or field programmable gate arrays, which have proven to be critical for AI).
However, it’s important to note that the first chips, which have the code name of “Lake Crest” and will be based on Intel Xeon processors, will not be launched until the first half of next year. According to an INTC press release, the platform will have “breakthrough performance and dramatic reductions in the time to train complex neural networks.”
But as with any newfangled technology, there will probably be some snags, and it will likely take time to get adoption. Besides, in the intensively competitive chip world, leadership does not necessarily last for long anyway. Let’s face it, NVDA has proven to be extremely versatile with pushing the boundaries of innovation.
Bottom Line on Intel Stock
For the most part, the real issue for Intel stock investors is that the company really needs to be successful with AI. If not, there could be erosion of its valuable data center business, which INTC has a 97% share. Consider that much of the growth for the company comes from this segment.
In light of this, is it any wonder that companies like NVDA, International Business Machines Corp. (NYSE:IBM), Advanced Micro Devices, Inc. (NASDAQ:AMD) and even Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) are gunning for it? Of course not.
What’s more, the major customers for AI technologies likely do not want to be reliant on one supplier. Rather, it is better to have some diversification, which allows for better pricing as well as richer feature sets.
Yet all this does not mean the Intel stock is somehow doomed. The fact is that the company will continue to have a hefty share of core markets in the chip industry and also generate nice cash flows.
There is also the attractive Intel dividend, which is at roughly 3% — the valuation is also reasonable. Keep in mind that INTC stock trades at a foward price-to-earnings ratio of about 12X, which is at a discount to MSFT’s 19X and Qualcomm, Inc.‘s (NASDAQ:QCOM) near-14X. But then again, the growth strategy for Intel stock is still a bit fuzzy.
For the near-term, INTC stock may be more of a vehicle for income, not one for capital appreciation.
Tom Taulli runs the InvestorPlace blog IPO Playbook and also has his own tax preparation firm. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
