It’s the proverbial best of times and worst of times for chip giant Intel (NASDAQ:INTC) and for Intel stock. On one hand, the company is impressively pivoting its business from PC-centric to data-centric. By doing so, it’s improving both its near-term and its long-term growth outlook.
On the other hand, INTC is facing stiff competition from up-and-coming chip player Advanced Micro Devices (NASDAQ:AMD).By leveraging ahead-of-the-curve innovation, AMD has stolen market share from Intel, throwing cold water on Intel’s data-centric turnaround.
When it comes to INTC stock, this contradiction has had a tug-of-war impact. When the data-centric pivot is going well and the AMD threat is muted, Intel stock has soared. On the flip-side, when the data-centric pivot slows and the AMD threat gains traction, INTC stock has dropped. Overall, though, INTC has been mostly defined by a few good rallies and a few bad drops over the past 18 months.
Ultimately, Intel stock hasn’t gained or lost any ground during that time. In the near-term, that trend will continue. But over the long-term, it won’t.
That’s because INTC will punch back against AMD at some point. When it does, the AMD threat will get sidelined, Intel will win back market share, and Intel stock will climb higher. But that won’t happen until 2020 or 2021. Until the turnaround occurs, INTC stock will be stuck in this tug-of-war between gaining momentum in data and losing market share in chips.
Given that tug-of-war, Intel stock is a “buy the dip, sell the rally” name in the near- to-medium term.
Intel Stock Has Healthy, Long-Term Growth Prospects
In the long run, Intel has healthy growth prospects, and Intel stock should trend notably higher.
INTC is at the heart of two non-cyclical growth trends. First, there’s the exploding global Internet of Things growth trend. Everything is becoming high-tech. It started with computers, smartphones, and tablets. Now there are smart TVs, smart appliances, automated check-out kiosks, connected register systems, smart cars, so on and so forth. The number of connected and smart devices is growing at an exponential rate. Eventually, everything will become connected to the internet. INTC’s chips will be used to power many of these connected devices.
Second, there’s the exploding data trend. Everywhere, enterprises left and right are realizing the importance of data. They are realizing how easy it is to collect data, how convenient it is to store data, and how useful it is to glean insights from data. As a result, around the world, companies are exploiting this data-centric and data-driven world. Specifically, enterprises are increasingly tapping into the cloud to collect, store, and analyze data – and INTC creates chips which power the cloud infrastructure behind all this data.
The bottom line is that INTC is at the heart of two booming, non-cyclical growth trends. More than that, the company is the leading player in these two growth trends, with healthy margins and a ton of resources it can use to beat its peers. As a result, the company is positioned to report healthy sales and profit growth in the long-run, powering INTC stock higher.
AMD’s Share Gains Are a Near-Term Risk for INTC
Although the long-term outlook for INTC stock is favorable, the near-term outlook is less favorable.
As I mentioned earlier, Intel has the resources, track record, and wherewithal to beat pretty much anyone in the chip industry. But developing and launching new chips takes time. So, if Intel falls behind the curve at any point in time, it will take a few quarters or years for the company to catch up.
That’s exactly where Intel is today. INTC has fallen behind the curve. AMD has launched next-gen 7nm chips, and Intel hasn’t. Because of that, AMD has gained significant market share in the desktop, server, and mobile CPU markets over the past two years. Worse yet, Intel won’t respond with its own next-gen chips until 2020, and its 7nm chips aren’t set to hit the market until 2021.
Thus, for the next few quarters, Intel is poised to keep losing share to AMD. As long as that dynamic persists, Intel stock will not be able to reach new highs.
My estimates suggest that, in the near-term, Intel stock should have a roughly $55 price tag. As long as INTC keeps losing market share, I know that investors’ view of Intel stock will remain depressed. Whenever I see a situation like that, I don’t buy a stock until it is well below my price target.
Because of that, I’m not a huge fan of Intel stock anywhere above $50, at least in the near-term.
The Bottom Line on INTC Stock
Over the long-term, Intel stock looks good, thanks to non-cyclical growth drivers in the IoT and data markets, and the company’s leadership position in both of those markets. But, in the near-term, Intel’s leadership position is being challenged by AMD. As long as Intel continues to lose market share, INTC stock will have a tough time breaking out.
Consequently, for the foreseeable future, I see Intel stock as a “buy the dip, sell the rally” stock. Once its market share problems get fixed, however, Intel stock will become a “buy-and-hold” name. Until then, be wary of any strong rallies by INTC stock.
As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.