Intel Corporation (NASDAQ:INTC) stock suddenly has become very interesting. For several years, the INTC stock price had gained rather modestly, missing out on the huge rally in chip stocks and large-cap tech more broadly. Intel news was mixed, but hardly impressive: Both revenue and earnings actually declined year-over-year in 2015, before modest gains last year.
That’s changed of late. Intel stock moved from $35 to $47 in just two months. But after the INTC stock price touched a 17-year high following what InvestorPlace contributor Dana Blankenhorn correctly called a blowout Q3 earnings report, the rally has stalled. INTC has pulled back over 7% from highs earlier this month.
From here, the recent decline looks like a pause in the rally, not an end. Weakness in the chip sector — including big drops on Wednesday in AMD, NVDA, and Micron Technology, Inc. (NASDAQ:MU) — has had an impact. There may have been some profit-taking after the big gains. It’s even possible that some income investors have moved on, with the INTC dividend yield dropping from over 3% to about 2.5%.
But the INTC stock price remains cheap, and growth drivers remain intact. I wrote earlier this month that Intel has a story that sounds a lot like that of fellow PC giant Microsoft Corporation (NASDAQ:MSFT), and that’s still the case. A short-term pullback doesn’t change that case.
Does Intel News Justify A Pullback?
There have been some jitters in the chip space of late, with even high-flyers like NVDA and MU pulling back double-digits just in the past few sessions. And there have been a couple of concerning developments that might resurrect the growth concerns that have dampened enthusiasm toward Intel stock.
Notably, rejuvenated competition remains the biggest risk to Intel going forward. On that front, Forbes reported last week that AMD and Intel had a massive price war on Black Friday. Intel posted a nice Q3, as noted — but Nvidia posted torrid growth in its third quarter, including 175% revenue growth in its datacenter business.
Intel’s Xeon chips are supposed to maintain the company’s dominance in data center, and fend off Nvidia in artificial intelligence (AI). It’s battling AMD’s new and improved Ryzen line in CPUs as well. Meanwhile, Samsung has taken the top market share spot worldwide for the first time in 24 years, according to a recent report. And the possible tie-up of Broadcom Ltd (NASDAQ:AVGO) and Qualcomm, Inc. (NASDAQ:QCOM) could create another giant with which to compete.
Add those competitive concerns to what looks like some newly negative sentiment toward semiconductors as a whole, and it’s perhaps not surprising that INTC stock has struggled this month.
INTC Stock Price Still Looks Cheap
Still, I’m far from ready to toss out the bull case for Intel stock. There are risks to the company’s legacy businesses., But there are growth opportunities too.
The most obvious is Intel’s increasing importance to Apple Inc. (NASDAQ:AAPL). The royalty battle between Apple and Qualcomm has created an opportunity for Intel’s modem business — and Intel looks set to take advantage. An entry into the iPhone would be a major driver for Intel and easily could offset any share losses in CPUs or data center.
Intel also is mitigating some of its competitive pressure by creating partnerships. A new deal with AMD should help in the PC space. The company just finished an expansion of a memory fab run in conjunction with Micron.
More broadly, Intel still has opportunities for growth. It’s an underappreciated leader in AI. The Mobileye acquisition will improve its offering in the key automotive space. And yet very little growth is priced into the INTC stock price.
This is a stock still trading at under 14x forward earnings. That’s not terribly different from where it traded a few years ago, when Intel stock looked much more challenged. It’s a multiple that suggests something close to zero growth, which still looks far too conservative.
Intel isn’t going to grow like Nvidia, to be sure — or even like AMD in the near term. But it’s not priced like either one of those stocks, or close. This is a tech giant with growth potential trading at a very attractive multiple. Soon enough, the market again will understand the value of that combination.
As of this writing, Vince Martin has no positions in any securities mentioned.