Is It Time to Take Profits on Intel Stock?

The recent gains in Intel stock are worth celebrating, but not chasing

It has been a great week so far for semiconductor stocks. President Donald Trump’s talks with Beijing have proven fruitful, which has eased worries about trade tensions deepening. With an end to the hostility between the U.S. and China in sight, a layer of risk has been removed from several tech stocks. Chipmaker Intel (NASDAQ:INTC) is one such company whose share price has made its way higher on the back of the news. Intel stock is up nearly 10% since the beginning of June, largely due to easing trade tension. Is this a rally worth chasing though, or should you take your money and run?

Intel stock INTC Stock
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Investors who are long INTC are hoping to see Intel’s stock price make its way back to the high 50’s as the firm continues to orchestrate a turnaround plan. The firm was considered top-of-class a decade ago when the PC market was still booming. However, now that market is on the decline, which has left Intel in a precarious position.

On top of that, Intel failed to break into the smartphone market, which has many analysts concerned because of the growing use of mobile devices. If the firm had been able to penetrate mobile, it could have served as a replacement for INTC’s declining PC business, but, unfortunately, Intel has missed that boat.

Turnaround Plans for INTC

However, Intel stock didn’t completely miss out on the benefits offered by growing smartphone usage. INTC controls the majority of the server processor market as well — a market that has benefited tremendously as cloud computing gained momentum. A rise in inter-connectivity between devices has created the need for more data centers in which to store and process data, which in turn has created higher demand for INTC’s server chips.

Plus, Intel is working on diversifying it’s portfolio with a string of strategic acquisitions that should start paying off in the years to come. In 2017, the firm put its hat in the self-driving car race by purchasing Mobileye, which makes software for autonomous vehicles. More recently, Intel bought Barefoot Networks in order to beef up its data center offerings and maintain its position at the top in that market.

The Trouble With Intel

Intel’s attempt to diversify and invest in its strengths are certainly commendable, but there’s a lot stacked up against the firm as well. Perhaps the most worrying obstacle that INTC is facing is competition. Although Intel is dominating the PC and server markets right now, the firm is losing marketshare to rival Advanced Micro Devices (NASDAQ:AMD). 

AMD chips have been touted as some of the most advanced, with its Ryzen processors edging out Intel’s competing chips in preliminary tests. Analysts aren’t the only ones worried about the threat that AMD poses either — Intel’s own management team acknowledged the threat that AMD has become in a leaked internal memo. 

Cheap Enough to Buy?

So, there’s a lot going on with INTC that investors should be cautious about. However, if you’re looking to ride the wave that the semiconductor industry appears to have caught, Intel is a relatively cheap way to do it. The firm trades at just 11 times its forward earnings, compared to AMD, which trades at 47 times its forecasted earnings. 

However, just because something is cheap doesn’t make it a good buy. There’s a reason Intel’s stock price isn’t where AMD’s is … because INTC is plagued with concerns about whether it can return to its former glory. 

Bottom Line on Intel Stock

I believe in Intel’s turnaround plans. Although competition from AMD will be a concern, the firm is financially sound enough to cope with it. INTC has done a good job of setting itself up for success in the future. However, Intel stock looks unlikely to make any sizable gains over the next year as the firm continues to lose ground to rivals and your capital might be better deployed somewhere else.

AMD is poised for larger gains and will likely beat out INTC over the next 12 months at least. However, AMD is also far more expensive making it a riskier play because of the potential loss should the firm make a misstep or the industry face a downturn. Intel, on the other hand, is unlikely to fall far in the near term because expectations aren’t quite as high. I don’t think now is the time to pick up Intel stock as there’s likely a bumpy road ahead that will offer better entry points, but I also wouldn’t sell up existing positions just yet either. 

As of this writing, Laura Hoy was long INTC.

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