There’s no getting around the fact that otherwise-renowned chipmaker Intel (NASDAQ:INTC) has been disappointing this year. Sure, the U.S.-China trade war has taken the wind out of the semiconductor industry’s sails. But as a recognized leader from decades of innovation, you expect something bigger. Right now, the INTC stock price is a little over $46, barely breaking above even for the year.
Internal problems continue to plague Intel. Of course, the company is struggling to find its way after an embarrassing fraternization incident that ousted former CEO Brian Krzanich. It’s a situation that stakeholders in INTC stock could do without. The semiconductor firm’s product pipeline is uninspiring, and oft-mentioned production woes continue.
Then you consider the external threats to the Intel stock price. Advanced Micro Devices (NASDAQ:AMD), historically an annoying low-cost leader from Intel’s perspective, is doing more than just buzzing around. At the latest Computex 2019, AMD revealed an array of products that are designed not just to compete with INTC, but to overtake it.
But in so doing, we have a strange irony. From a legacy point-of-view, AMD chips have largely won the value argument, while Intel dominated the premium segment. In the markets, though, AMD shares have grabbed top-shelf valuation. On the other hand, INTC stock looks incredibly underappreciated.
While I’m not really big on any semiconductor firm based on the escalating trade tensions, I think Intel stock offers an interesting contrarian argument. Here are three reasons why:
Little Separates Intel and AMD
If you read some of the fanboy messages on various online forums, you’ll come across a lot of hyperbole regarding AMD. Mostly, it’s on the theme that AMD will overtake Intel as the leader in high-end semiconductors. Forecasts of Intel’s imminent demise also accompany these posts.
But take aside the emotions, and what is the real picture? According to DigitalTrends.com, not much separates Intel and AMD. Sure, current news focuses on the latter: after all, we Americans love a good fight, especially from a plucky underdog. But in the broader framework, we’re still mostly dealing with established dynamics.
Primarily, AMD still considers lower and mid-tier products as its bread-and-butter. In contrast, the Intel stock price on a longer-term basis benefits from the underlying company’s premium-end chips. As Computex 2019 demonstrated, AMD has a lot to say about that. However, their desired overhaul won’t occur overnight.
Plus, holders of INTC stock can still rest easy knowing that they have the edge in certain segments. For example, Intel still leads in gaming chips, especially for serious or professional gamers. And yes, the latter category is very much a thing, and a growing one at that.
Also consider PC laptops. AMD has tried and continues to attempt to break down Intel’s market share. But right now, INTC is still the unquestioned leader. Again, while AMD is on the rise, it may take considerable time before they can damage Intel. That of course helps the contrarian case for INTC stock.
AMD’s Flagship Processor Might Not Kill Intel Stock
If you’re simply looking at the INTC-AMD battle from a product-pipeline perspective, it’s hard not to get a little nervous about the Intel stock price longer-term. That’s because the smaller of this fierce sibling rivalry is pulling out all the stops.
The upcoming lineup of the Ryzen 3000 series of CPUs has many Intel execs quaking in their well-polished shoes. Of course, they’re putting on a brave face, but then again, that’s what they’re supposed to do. Deep down, though, the temperature in their conference rooms is undoubtedly rising. This is the first time in over a decade that AMD will take the performance edge in multiple processor categories.
And that’s just on the product pipeline that AMD presented earlier. Just recently, though, insider rumors indicated that the company will release a Ryzen 3000 Threadripper chip with 64 cores by the end of this year. Theoretically, that would put a real hurt on Intel, and eventually INTC stock because of the battleground: AMD is finally competing with its much-larger and established rival in the premium-chip space.
Again, on surface, the situation looks awful for Intel stock. Nevertheless, contrarians can take some solace in that AMD doesn’t quite appear ready to launch its 64-core behemoth. It wasn’t long ago that many tech experts believed the flagship Threadripper brand was dead. The reason? Simply, it didn’t appear on AMD’s product roadmap for 2019.
But even if they did launch without a hiccup, I think AMD may suffer from a credibility overhang. Threadripper and its ilk are very expensive processors. Winning in the low- to mid-tier categories is one thing; winning in the premium category is an altogether different beast.
INTC Stock is Just Better Value
Advanced Micro Devices is showing the kind of moxy that you’d want all American businesses to demonstrate. For that, I think they deserve a lot of credit. But at the end of the day, AMD has an enterprise value of nearly $33 billion. In sharp contrast, INTC stock is looking at over $223 billion.
Put another way, we have two competing narratives. If you’re on the side of AMD, you believe that an already skyrocketing equity will again find a fresh catalyst; in other words, you’re banking on lightning striking twice.
But if you believe in Intel stock, I think your job is easier. For INTC to move higher, management must get its act together. Executives must also figure out how to start competing effectively again.
These are big challenges. However, they’re also reasonable ones considering their vast resources and legacy of excellence. As a contrarian bet, INTC stock is probably among the best available.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.