A combination of fierce competition from Advanced Micro Devices, Inc. (NASDAQ:AMD) and Intel Corporation (NASDAQ:INTC) management delaying key chip releases is putting strong selling pressure on the latter. So, no one may wonder why Intel stock is in a downtrend since peaking in June 2018. With a price-to-earnings valuation at a favorably low multiple of 11.8, is it time to consider this chip giant or take a pass on it?

Analysts at Raymond James had the right idea in downgrading INTC stock on Sept. 25. The investment house cited the delay of 10nm production as the biggest strategic problem for Intel. AMD’s EPYC server chip already has many feature advantages over the current generation of Intel Xeon CPUs. This includes scalability, more advanced security features and better price-to-performance.

Intel has only one advantage left that will erode over time. Its loyal and established customer base may stick with a Xeon-powered server solution or wait until Intel releases the next generation of chips in 1-2 years. But AMD touts EPYC as having 60% more I/O and 45% more cores. With specifications like that, AMD’s nearly threefold rise from yearly lows is mouth-watering for traders compared to Intel’s 0.61% year-to-date decline.

Intel’s Dividends Reward Investors

Investors may forgive management for being too slow with the chip refresh. They get paid a dividend yielding 2.62% while holding on patiently as growth holds 10.2% over the next five years. That gives INTC stock a forward P/E ratio of 10.7. So a “Dividend Discount: Multi-Stage” model (number crunch a fair value on finbox.io) would imply a yield dividend growth of 11.3% and a stock price target of around $57.

Intel to Lose Production Process Lead

Intel’s low valuation on the market discounts the troubles that lie ahead for the chip giant. With the CPU refresh delayed, Intel will, for the first time in its history, lag in the process lead. If AMD gets to the 10nm and 7nm process in a year or two, it will look silly for Intel to sell chips much bigger than that.

Intel’s problems lie further than process nodes. AMD’s EPYC has a memory encryption feature for added security. The AMD Radeon GPU V340 has hardware-based security, giving multi-users added protection.

Growth in Mobileye

Intel’s purchase of Mobileye in 2017 expands the company’s market opportunity beyond CPUs. In the autonomous driving world, markets for Level 1 and Level 2 drive assist systems are growing. Modern cars now have sophisticated sensors that help a driver avoid collisions, effectively raising the safety levels. EyeQ, a system on a chip, is now in its fourth-generation chip, with a fifth-generation one coming out by the end of this year. These chips are a “closed system”. The software, application software and algorithms all power the sensors, actuation and other functions inside the chip.

Mobileye’s EyeQ4 counts BMW, NIO, and Volkswagon as some of its customers. In all, six customers launched vehicles using this chip. Next year, there will be 12 more. EyeQ’s shipment growth is phenomenal, growing 50% year over year. In total, the unit shipped 32 million chips to date.

So, while AMD may dominate in the slowing PC market but take market share in servers, Intel still has potential growth from Mobileye’s successes. The unit will probably make more profit than AMD will this year. For the quarter ended Dec. 30, 2017, AMD made $43 million. Even if profits double to $100-$150 million, they will still pale in comparison to Mobileye’s profits.

Mobileye’s strategic value cannot be underestimated. Very likely, the massive customer database will add value to Intel’s development of high-end Xeons and FPGA (from the Altera unit). So, short term, even though Intel’s future looks bleak, its long-term prospects are stronger than ever.

As of this writing, Chris Lau has no positions in any securities mentioned.