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Distraction-Free INTC Stock Is a Contrarian’s Dream

With production capacity apparently a non-issue, Intel stock can now realize its recovery rally

INTC - Distraction-Free INTC Stock Is a Contrarian’s Dream

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In one fell swoop, Intel (NASDAQ:INTC) reasserted itself back into the semiconductor discussion. For several months, all eyes zeroed in on Advanced Micro Devices (NASDAQ:AMD). Since the beginning of June, AMD has more than doubled. In sharp contrast, INTC stock has fallen nearly 17%.

The biggest headwind impacting the iconic chipmaker was supply constraints. According to JP Morgan analysts in mid-September, the company wasn’t making enough processor chips to feed holiday demand. The analysts estimated that fourth-quarter PC shipments will slip by 5% to 7%.

Making matters worse, Intel would lose out on higher-margin premium PCs. Moreover, this would impact both laptops and desktops. The latter is particularly significant because they’re going out of style. That doesn’t apply, though, if you’re using desktops to perform intensive operations, such as gaming or mining cryptocurrencies.

In this case, consumers prefer the best of the best. The inability for the chipmaker to perform placed an understandable damper on Intel stock.

Obviously, the company’s woes gave a leg-up to rival AMD. In the second half of September, Jefferies analysts alarmed INTC shareholders when they stated that Intel’s problems could triple AMD’s market share.

The sobering forecast conspicuously hurt Intel stock. Prior to the bearish outlook, INTC appeared on the verge of a recovery rally. After the news, shares steadily eroded. Those hiccups stopped last Friday.

INTC stock spiked over 3% when the company’s interim CEO Bob Swan revealed some much-needed news. It turns out, Intel can produce enough chips to meet holiday demand. Specifically, Swan assured shareholders that the company will hit its full-year revenue outlook.

On the other end of the scale, AMD slipped over 5%. This sets up an intriguing situation — one that’s beneficial for Intel stock.

INTC Is Clearly an Underrated Opportunity

I’ll discuss the obvious dynamic first. The juxtaposition between Intel stock and AMD stock couldn’t be more stark. The former is a fundamentally solid company that hit a few bumps on the road. The latter is a higher-risk, higher-reward opportunity that may have hit a temporary peak.

If only from a pure technical angle, INTC stock stands out from its rival. Since mid-September, shares have held support at around $45. On the other hand, AMD has gone sideways over the same time frame. The concern now is that AMD suffers a correction near multi-year highs.

More importantly, I think Friday’s market reaction is quite telling. Intel had just recently started to pick itself back up. Management reassuring its stakeholders provided the confidence the markets sought.

But AMD falling on Intel’s good news? That’s indicative of pure speculative trading. Yes, key competitors tripping on themselves is a positive. However, I’d like to see shares rise because a company is producing a superior product, not because of a rival’s misfortune. After all, such incidents are typically one-off events.

And now that INTC has apparently shed its most distracting headwind, we’re back to an even playing field. This puts Intel in the driver’s seat because of its premium product offerings. Recently, Intel has delivered multiple iterations of their latest eighth-generation Intel Core processors, including those for laptops, business operations and gaming.

As well, the company has introduced a groundbreaking solid-state drive which features a massive 32 terabytes of storage capacity. Called the Intel SSD DC P4500, management claims it’s their densest drive ever produced. This is as much a technological leap as it is a signal of intent to industry leaders Western Digital (NASDAQ:WDC) and Seagate Technology (NASDAQ:STX).

Finally, let’s not forget that Intel maintains a strong lead in the data center business.

Intel Stock Is Also the Safer Pick

The other reason I feel more confident with Intel stock as opposed to its rivals is security. I got the impression that AMD needed something spectacular to keep its market momentum alive. A ruinous supply situation at INTC would have accomplished exactly that.

Assuming its leadership team is telling the honest truth, this schadenfreude-based tailwind for AMD is off the table. Now, the semiconductor firm that will likely do the most disrupting is the one with the most resources. That description fits Intel much better than AMD.

Indeed, Intel’s fiscal robustness allows the company to enjoy a significant presence in 5G. This not to slight Advanced Micro. However, as our own Will Healy points out, AMD is a less-obvious play on the 5G rollout. Rather than direct engagement, AMD benefits from ancillary association.

Taken as a whole, I think you’re better served at this juncture going with INTC stock. Technically, it’s on the bottom looking up. Fundamentally, Intel features strength across the board. Moving forward, the company is in a better position to advantage lucrative tech sub-segments.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

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