3 Reasons To Take A Flyer On Intel Stock

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Not long ago, the boom-bust cycle for semiconductors was thought to be a thing of the past. With technology so pervasive and a critical element in our everyday lives, there would certainly be strong secular growth.

Here Are 3 Reasons To Take A Flyer On Intel Stock

Then came a global trade war between the U.S. and China, and it seems like all bets are off. It certainly looks like we are seeing a slowdown in demand.

We got stark evidence of this last week from Broadcom (NASDAQ:AVGO). Because of the Washington’s actions against Huawei, Broadcom announced it would lose about $2 billion in sales this year. As The Wall Street Journal’s “Heard on the Street” column put it, “But you can’t freeze out one of the world’s largest chip buyers without causing ripple effects.”

So in light of all this, it’s understandable that investors are dumping shares — and that the overall sentiment is downright awful. Yet AVGO will definitely not be a one-off. The fact is that the semiconductor ecosystem is delicate. And it will take some time for companies to adjust.

Kind of scary, huh? True. But in times like these, there are often value opportunities, say with marque players. And one that stands out is Intel (NASDAQ:INTC). For investors willing to stomach some volatility and able (and willing) to hold on for the long haul, INTC stock really does look attractive right now.

So let’s take a look at the positives for the Intel stock price:

INTC Stock Valuation and Dividend

The problems with INTC stock go beyond trade tensions. The fact is that the company has suffered from problems with execution. There have been mishaps with quality and the development of next-generation chips. There have also been problems dealing with competitors, such as Advanced Micro Devices (NASDAQ:AMD).

But it does look like much of the bad news is already baked into Intel stock. Since mid April, the shares have lost about 20% of their value, compared to a 1.5% decline in the Nasdaq Composite index. As a result, INTC stock is now trading at a lowly 10.6 times earnings. The dividend yield is also at a decent 2.69%.

Diversification Efforts

Intel’s platform spans many critical segments: PCs, the data center, the internet-of-things (IoT), non-volatile memory solutions and programmable solutions. For this year, these businesses are expected to generate $69 billion in revenue and $15 billion in free cash flow.

Ironically, the PC business has turned out to be essential (even with the diversification efforts, this segment still accounts for 52% of revenues). During the latest quarter, revenue grew by 4%, with strength in gaming, large commercial customers and modems. The momentum is also likely to continue with the launch of the 10-nanomete processor that is expected to hit the markets during the holiday selling season.

Consider that Intel also has been strategic with its focus. For example, in light of Apple’s (NASDAQ:AAPL) settlement with Qualcomm (NASDAQ:QCOM), the company has exited the smartphone modem business.

In the meantime, Intel is looking to aggressively expand into other growth categories. To this end, the company recently acquired Barefoot Networks, a fast-growing startup that is targeting chips for handling communications with ethernet connections. The deal is likely to put pressure on AVGO.

The Artificial Intelligence Imperative

AI is becoming a must-have in the tech world. And this is definitely good news for Intel since it has been investing heavily in this technology.

Back in 2017, Intel shelled out $15.3 billion for Mobileye, a leader in autonomous-driving and safety systems for cars. According to InvestorPlace’s James Brumley: “Though it only drove a little over $200 million worth of revenue last quarter, that figure was up 38% year-over-year as the entire self-driving and driver-assist movement starts to reach critical mass. As of early last year, Mobileye controlled 70% of the autonomous driving market. That’s a bonus most stakeholders don’t know about or appreciate.”

Intel has also developed its Nervana Neural Network Processor for Inference (NNP-I), which is for deep learning. It already has top partners like Facebook (NASDAQ:FB).

And finally, there is the Xeon Scalable processor, which is likely to have a major impact. As CEO Robert Swan noted on the latest earnings call: “Our new second-generation Xeon Scalable is the only processor in the industry with built-in artificial intelligence acceleration. Not only did we deliver a 14x generation-over-generation performance improvement, but we also showed CPU performance beating GPU performance on major AI workloads like recommendation engines.”

Tom Taulli is the author of the upcoming book, Artificial Intelligence Basics: A Non-Technical IntroductionFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2019/06/3-reasons-to-take-a-flyer-on-intel-stock/.

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