Over the past two years, shares of semiconductor giant Intel (NASDAQ:INTC) have made three big pushes towards the $60 mark. The first big push played out in the first half of 2018. It ended with INTC stock failing to take out the $60 level. The second big push played out in the second half of 2019. It had a similar ending, with Intel stock getting very close to but never hitting $60, before shares reversed course and dropped towards $50.
Right now, we are in the midst of the third big push. Over the past three months, INTC stock has powered from $45 to just shy of $60 amid easing U.S.-China trade tensions and improving semiconductor market conditions.
Shares have somewhat flat-lined around the $57 to $59 level over the past few weeks, and the big question on everyone’s mind now is whether INTC stock will finally take out and hold the $60 level.
I think so. Given improving market conditions, stable long-term growth tailwinds, a promising product road-map, and a reasonable valuation, INTC stock appears to finally have enough firepower to break through the $60 level.
Even further, I think there’s enough firepower here to push shares towards $65 in 2020.
Intel Looks Good Into 2020
Intel stock looks good heading into 2020 for four big reasons.
First, the macro backdrop is improving. U.S.-China trade tensions are easing. As they continue to ease going forward, global corporate confidence will rebound, which will spark a similar rebound in global capital spending.
Capital spending is the fuel of the semiconductor market, so as capital spending trends pick up in 2020, presently depressed semiconductor demand will rebound and the global semi market will go from declining, to growing.
Second, Intel will get a big 5G boost in 2020. Intel is under intense competitive pressure from Advanced Micro Devices (NASDAQ:AMD) in a lot of CPU verticals. But, one CPU vertical which Intel continues to dominate is the Internet-of-Things (IoT) vertical, where Intel supplies CPUs for various connected devices.
The 5G evolution coming in 2020 will provide a huge lift to the whole IoT space by dramatically expanding the capacity of connected devices a network can effectively power. In so doing, consumers and enterprises will buy a lot more IoT devices in 2020, implying a supercharged demand for Intel’s IoT CPUs.
Third, Intel’s next-generation 7 nanometer CPUs are launching in 2021. Sure, that’s still more than twelve months out, but investors are forward-thinking people, and they often don’t like to sell a stock ahead of a big catalyst. The 7 nanometer CPU launch in 2021 is a huge catalyst with the potential to turn Intel from a share-losing company to a share-gaining company. Ahead of that catalyst, it’s tough to see many investors wanting to ditch INTC stock in 2020.
Fourth, the valuation underlying INTC stock remains reasonable, with shares presently trading hands at just 13-times forward earnings (versus a semiconductor sector-average forward earnings multiple of 17).
Intel Stock Can Take out $60
The numbers here work out so that Intel stock looks well-positioned to take out the $60 level in 2020.
Intel’s revenue growth trends are improving thanks to easing trade tensions revitalizing demand in the semiconductor market. Two quarters ago, Intel’s revenues dropped 3% year-over-year. Last quarter, they were flat year-over-year. Next quarter, they are expected to rise by 3%.
This growth trajectory rebound will persist in 2020 thanks to 5G-related catalysts and also persist in 2021 and after thanks to the launch of next-generation 7 nanometer products. Thus, when I look out over the next few years for Intel, there are enough catalysts here to keep revenue growth in the 2-3% range for the foreseeable future.
Gross margins will be under pressure thanks to intense competition in the CPU marketplace. But, Intel has done an excellent job managing expenses over the past few years, and assuming this persists, profit margins will have room to move higher through positive operating leverage.
Assuming 2-3% revenue growth on top of mild margin expansion, Intel should be able to post about $6 in earnings per share by fiscal 2025. Based on a semiconductor sector-average 17-times forward earnings multiple, that equates to a 2024 price target of $102. Discounted back by 10% per year, that implies a 2020 price target for INTC stock of almost $70.
Bottom Line on INTC Stock
Intel stock has made a big push towards $60 before, and both times, shares failed to pass above $60. This time should be different. INTC stock has enough firepower here, with enough catalysts on the horizon, to push shares well above $60 in 2020.
As of this writing, Luke Lango was long INTC.