As Advanced Micro Devices (NASDAQ: AMD) continues its uptrend and up 62% year-to-date, Intel Corporation (NASDAQ: INTC) is barely holding up. Intel stock is up just 2.7% but the big, recent story is its plunge after topping $59.59 in April.
When the company reported quarterly earnings, angry investors reacted to the weak results and outlook by dumping Intel stock. What are the many issues that management must fix?
More important, investors must ask if it is too late to turn the business around as AMD jumps ahead in the desktop PC and server market.
A Closer Look at Intel Stock
Advanced Micro Devices announced 7nm Navi GPU and the next-generation Ryzen at Computex. This jump ahead is in stark contrast to Intel’s glaringly disappointing delays for the 10nm launch. On its earnings call in late April, the company said it will launch 10nm chips during the holiday season.
On closer inspection, the 10nm roadmap might have just one four-core laptop. The key idea is its introduction is in limited quantities; 14nm will still be a large part of its product roadmap and product mix in 2020 and 2021.
The following month, Intel confirmed that 10nm CPU production will start in July and will start with the mobile Ice Lake platform. Multiple 10nm products potentially show up this year and in 2020.
AMD and Intel Stock
Needless to say, AMD’s 7nm ramp-up will further its lead over Intel. And since AMD will have desktop chips out first, enthusiasts will pick its chip over Intel’s offering.
Today, AMD’s 16-core 5GHz easily beat Intel’s $2000 i9 9980XE. Price-conscious consumers will choose AMD chips unless Intel cuts prices.
In the server space, AMD’s EPYC is a compelling offering over Intel’s server chips. Still, a security vulnerability in AMD EPYC chips may slow the market share growth for EPYC. Since it was discovered, AMD issued a patch to fix the bug.
Macro Headwinds and Intel Stock
The U.S./China trade tensions, along with the U.S. ban on Huawei, will hurt Intel’s revenue. Intel and other chipmakers, including Xilinx (NASDAQ:XLNX) and Qualcomm (NASDAQ:QCOM), are lobbying the government against the Huawei ban.
They are seeking for an easing in restrictions. Otherwise, the chipmakers stand to lose billions in revenue. For now, Intel and Micron Technology (NASDAQ:MU) found ways to work around the ban by not labeling the products as American-made.
The companies will get Huawei components this way but unless the government lifts the ban, it may reinforce its efforts and close the loopholes.
Intel trades at a modest valuation of 10.7 times forward earnings, so chances are good that the impact of trade restrictions is already priced in the stock. But investors could also buy Micron stock based on forward P/E valuations of sub-10 times that are lower than that of Intel.
Wall Street has more “hold” ratings than “buy” ones on Intel stock but still set a $51.84 target price.
If investors build a valuation model based on Intel’s 2.61% dividend yield, then the stock has a fair value in the high $50s. Conversely, using a 5-year DCF EBITDA Exit model, assume revenue grows between -3% and +4%. In this scenario, Intel stock has a fair value of $45.40, 6% below its $48.19 closing price (per finbox.io)
Your Intel Stock Takeaway
AMD is the all-star CPU supplier these days but Intel is like a slow and steady bond that pays a fair dividend. Its production delays for next-generation chips are a setback for now. As management rights its ship by addressing the manufacturing issue, the stock will continue its rebound.
Though the stock may spend more time in a range of between $44 – $50, the breakout above $50 is possible later on down the road. To get there, its first step is getting the 10nm production in the channels and in mass quantities.
Disclosure: As of this writing, the author did not hold a position in any of the aforementioned securities.