Intel Corporation (NASDAQ:INTC) does not need to try very hard these days. The company refreshed its line of PC chips and is taking a measured, albeit expensive, approach in building its new businesses.
If investors ignore Intel’s history of overpaying for acquisitions like it did with Mobileye, then they may sit tight to enjoy the positive cash flow growth and profitability of its core business.
Intel refreshed the computer chips that power most PCs around the world. Though it admitted some of its chips are vulnerable to hacking, the security hole is unlikely to put a dent in sales. Even though the PC market is shrinking, due to the exploding growth in smartphones, businesses still need to refresh their hardware every few years.
To keep ahead of the curve and to maintain its profit margin, Intel leaked details of its 8th generation Coffee Lake chips.
Both the mobile and desktop processors will have a Core i9 option. The six-core/12-thread will satisfy even the most power-hungry end user. The Core i5 family will continue targeting the mainstream market, while the Core i7 will appeal to users who need more power from the computer system.
Intel Mobile Device Play
Even with Intel’s lack of presence in the smartphone market, the company is still delivering on revenue growth. But INTC cannot stay out for too long. To take advantage of the litigation between Apple Inc. (NASDAQ:AAPL) and Qualcomm, Inc. (NASDAQ:QCOM), Intel is reportedly working with Apple to develop a 5G wireless broadband solution.
The partnership is a win-win for Apple and Intel. Apple wants to lessen its dependence on Qualcomm, while Intel will start making some of its revenue from the mobile market.
Partnership With Micron
Recognizing the importance of high-speed storage demand, Intel partnered with Micron Technology, Inc. (NASDAQ:MU) to develop 3D XPoint. According to Anandtech, Intel will launch these memory modules in the second half of 2018.
Micron finished with its building expansion that will be the site for IM Flash production. When both companies mass produce the product next year, revenue growth will accelerate. At a P/E of 9.7x for Micron and 15.7x for Intel, both stocks will look cheap in light of a major product refresh coming down the pipeline.
Investors who buy both MU and INTC stock are likely getting a discount on their future values. Markets are likely discounting the share prices to account for the potential of a release delay. The market may be pricing in limited production for 3D XPoint-based solutions, at least for 2018. Yet if markets are wrong in anticipating these temporary headwinds, shares of both companies will soar.
Valuation
Analysts are mostly bullish on INTC stock. Of the 27 analysts covering it, 17 rank Intel stock as a buy. The median price target is $50 a share (according to TipRanks). Conversely, of the 12 models built for estimating Intel’s fair value on finbox.io, the average price target is $41.56. Who is right?
Intel’s growth is hardly inspiring. Its revenue will not grow by more than eight percent, and its earnings growth will lag that of the semiconductors and semiconductor equipment market. Still, if Intel trades in a range, it will give the company time to build its business in autonomous driving (through Mobileye).
Takeaway on INTC Stock
INTC stock broke out beyond its longtime trading range of between $34 to $36 a share. If the stock dips lower, the drop will not last long. This would only give value investors another chance to buy the stock at a discount.
Disclosure: Author holds no shares in any of the companies mentioned.
