If you haven’t looked at an Intel (NASDAQ:INTC) stock chart recently, you’d probably expect that the company is having a rough year. Reporters keep talking about how the company’s technology is falling behind rivals on various fronts. The trade war has smacked demand for semiconductor chips generally. And big-cap tech stocks have struggled over the past few months.
Contrary to what you might expect, INTC stock has fared reasonably well. In fact, at $50 a share now, it’s in the center of its trading range of $40 to $60 over the past year. And shares are up 8% year-to-date.
The gains won’t stop there, either. Here’s why the INTC stock price will move higher in coming months.
Intel Remains the Dominant Player in CPU Chips
Reading the headlines, you might get the sense that Intel’s business has taken heavy fire from AMD (NASDAQ:AMD) recently. And give AMD credit where it is due: that company has its strongest lineup of chips in a decade. At the margins, AMD has taken a bit of market share from Intel.
Overall, however, little has changed. Intel continues to own the majority of the PC market. Data from PassMark shows that Intel retains 70% of the CPU market, with AMD getting 30%. AMD has made credible gains recently; these figures were closer to 80% and 20% a few years ago. Nonetheless, last quarter was flat, showing that AMD’s momentum may be slowing. And in any case, even if things settle at 70% instead of 80%, Intel has a fantastic position there.
If you’re thinking about Intel’s future in the chip business, there’s actually a more under-the-radar threat than AMD worth watching. Microsoft (NASDAQ:MSFT) has teamed up with Qualcomm (NASDAQ:QCOM) to try running a Surface tablet on a Qualcomm chip rather than a traditional x86 offering. In theory, over time, Qualcomm could take some serious share for tablets with 2-in-1 capability to serve as budget laptops.
Microsoft tried a mobile chip based tablet previously, however it could work this time around, as Qualcomm’s technology has improved exponentially. The battery life savings should be significant compared to Intel and AMD chips. For now, however, Intel continues to dominate.
Intel Stock Is a Cash Cow
Sometimes people get the idea that Intel isn’t a great business because it has to heavily reinvest in the future. It’s not hard to look at a rival like AMD and see them spend nearly every dollar that comes in on R&D and CAPEX and get that idea. But Intel stands apart from the competition.
Consider this: Last year, Intel brought in $29 billion in cash flow from operations. That’s not its revenues — that’s its cash flow that it generated from selling chips profitably. By comparison, AMD brought in just $6 billion in total revenues, and an almost laughable $34 million in cash flow from operations. Not only is Intel far bigger than AMD in total sales, it turns tens of billions of those sales into straight cash, whereas AMD is barely breaking even on that metric.
What does Intel do with all those bucks? They reinvest a ton of them in the business. Intel spent $15 billion on capital expenditures last year, preparing for the next generation of successful products. Intel is spending far more on capital expenditures than AMD’s entire annual revenues. For more contrast, Nvidia (NASDAQ:NVDA) brought in $3 billion in cash flow last year and spent $600 million of it on capital expenditures. Intel is simply in another league.
Even after spending $15 billion on capex, that left $14 billion of operating cash flow for other purposes. The company primarily used this to buy back INTC stock, along with paying its more than 2.5% dividend yield. While a more speculative marginally profitable company like AMD may have more upside if everything goes right, Intel is a stable predictable colossus of cash that will continue to reward shareholders for many years to come.
INTC Stock Verdict
I continue to hold my position in INTC stock. My cost basis is $33 and I’ve held the shares for a couple years now. If I got nervous every time I saw an AMD gaining ground on Intel article, I would have bailed a long time ago. That would have left a lot of capital gains and dividends on the table.
Zoom out past the day-to-day noise, though, and you’ll see that Intel is still the key player in its markets. Its balance sheet is orders of magnitude better than AMD, and its stable cash flows make it a great income play. That steady business performance has also given Intel the opportunity to invest heavily in future growth avenues such as self-driving vehicle technology.
INTC stock isn’t likely to be a home run purchase from this price. But with its strong dividend and selling for less than 12x earnings, Intel will continue to steadily generate shareholder value in coming months and years.
At the time of this writing, Ian Bezek owned INTC stock and QCOM stock. You can reach him on Twitter at @irbezek.