Price action and evolving tech needs have long left investors wondering what to do about Intel (NASDAQ:INTC). Since early June, Intel stock has moved higher by about 10%.
However, INTC stock has remained range-bound for almost two years. Changing technology has arguably made Nvidia (NASDAQ:NVDA) a more critical chip company than Intel. Also, AMD (NASDAQ:AMD), who consistently lagged Intel during the PC era, has taken a technical lead in many respects.
Still, despite this stagnation, its long-term outlook may improve dramatically. While I expect little near-term growth in Intel stock, a technological shift could send INTC much higher over the next few years.
A Closer Look at Intel Stock
The price-to-earnings (PE) ratio serves as an important indicator in the semi industry. In its heyday during the PC era, Intel commanded PE ratios in the 30s and 40s. Instead, competitors such as AMD and Nvidia now command comparable multiples.
Today, with Intel falling behind peers, it currently trades at a multiple of about 10.8. Investors should note that both Nvidia and AMD fell to similar PE ratios a few years ago when their prospects dimmed.
From this industry pattern of multiple expansion and contraction, we can surmise that Intel stock is a buy, eventually. This despite a pattern of range-bound trading going back to 2017. The Intel stock price now stands at just under $48 per share.
Does that mean that the comeback in Intel stock will begin soon? Not so fast. Those who buy now merely because of the low PE ratio will likely see their patience tested. As our own Laura Hoy stated, Intel likely faces a “bumpy road” ahead.
Right now, recent headlines bode poorly for Intel. Read about Intel’s technology, and you will hear about slowing data center sales and AMD’s faster processors.
To my colleague Will Ashworth’s point, you may also hear about Microsoft (NASDAQ:MSFT) possibly sourcing processors from AMD or Qualcomm (NASDAQ:QCOM) instead of Intel for the Microsoft Surface.
What INTC needs
Like its peers in recent years, Intel stock needs a catalyst to inspire buying. For Nvidia, it meant applying its graphics processing units (GPU) to artificial intelligence (AI), virtual reality (VR), and self-driving cars. Likewise, AMD built its comeback on becoming the other GPU company and taking a technical lead on Intel.
Seeing comparable action in Intel stock may amount to waiting on two technologies to see widespread adoption, 5G and self-driving cars. As I stated in my previous article, Project Athena will bring the next-generation, 5G compatible products to the market.
Moreover, Mobileye has begun testing self-driving taxis. It also signed a contract to bring its technology to 8 million vehicles earlier in the year.
Once these innovations hit the market, I think that can drive the long-awaited move into Intel stock. If investors begin to believe in Intel again, I think the PE ratio (now at about 10.8) will reach levels comparable to the ones currently seen in both AMD and Nvidia.
NVDA now trades at just under 30 times earnings. Hence, simply taking INTC stock to a comparable valuation would roughly triple the value of INTC.
The Bottom Line on Intel stock
Intel stock may struggle for some time to come, but a change in technology could send it much higher long term. INTC stock has risen over the last few weeks. However, slowing data center sales and losing its technical lead over AMD could hurt INTC in the coming months.
Intel has developed products for both 5G and autonomous vehicles. Hence, after a technological shift occurs, the outlook may become much brighter. Investors will need to wait for both to see more widespread adoption to see if this theory plays out.
Still, a return to prominence for Intel would unlock tremendous value. Intel stock currently supports a market cap of about $211 billion. A PE ratio of 30 takes that to about $600 billion.
A multiple of 50 would bring the market cap to the $1 trillion mark. Although I do not predict such a valuation, this also shows that Intel is closer than many think to again becoming a top company in tech. With a little patience, investors can benefit tremendously from such a move.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.
