Intel (NASDAQ:INTC) has had a strong few months. On Aug. 23, Intel stock was $44.80. Then on Nov. 26, Intel shares hit a recent high of $59.13. Year-to-date, the stock is up over 20%.
I do not expect Intel share price to go and stay over $60 in the near-term. However, long-term investors may consider adding Intel stock to their portfolio at every dip.
On Oct. 24, Intel stock reported Q3 earnings. Revenue of $19.2 billion set a new record and exceeded July 2019 guidance.
In other words, management smashed revenue estimates by about $1.1 billion as the Street expected $18.05 billion in sales. Adjusted earnings per share hit $1.42, up 1%.
Intel reports earnings by two main segments: client computing group (CCG) and data center group (DCG).
CCG is PC-centric and includes Intel’s PC and mobile-device chip business. The central processing unit (CPU) is the “compute” in the computer. Intel’s CGC segment makes the CPUs.
The chip giant highlights that the DCG segment “is at the heart of [the] transformation from a PC company to [one that] powers the cloud and billions of smart, connected computing devices.” Going forward, DCG is expected to be the company’s main growth engine.
Revenue growth was driven by record data-centric revenue, which grew 6% YoY and hit $6.4 billion. On the other hand, PC-centric revenue of $9.7 billion declined 5% YoY.
Management also increased full-year revenue outlook to $71 billion, up $1.5 billion from July guidance.
Management Is Transforming Intel
Intel designs and manufactures advanced integrated digital technology platforms. It works with companies to produce needed technology like integrated circuits for computing and communication.
It controls nearly three-quarters of the CPU market, and Intel processors are the main component — “Intel Inside” — in most of the world’s personal computers and servers.
Yet, the worldwide PC market, which is also Intel’s core market, has been at best flat for the past few years. Indeed PC sales are expected to drop about 2% in 2019. And smartphones and cloud have been disrupting this segment.
Over the past few years, the decline of PCs has also affected Intel stock price as until recently the shares failed to make new highs but instead traded in a rather tight range.
As a result, secular headwinds faced in the PC markets now Intel management is increasingly on a mission to redefine the company and restructure itself to better match the needs of customers and the growth in data.
We are all witnessing the fact that computing is increasingly becoming personal and incorporated into many more aspects of daily life. Recent technological advancement can be summarized by growth in data centers, Internet of Things (IoT), and memory. Memory complements data centers and IOT, enabling systems to be faster.
Intel currently holds over a 90% share of the data center server market, which has been a consistent growth driver for the company.
In Q3, IoT generated $1 billion in revenue, up 9%. Mobileye revenue was $229 million, up 20%. Intel’s memory business generated $1.3 billion, up 19%, and programmable chips hit $507 million, up 2%.
As the world becomes more connected and focuses on smart devices, there will likely be more demand for data and connectivity to devices, fueling growth in Intel’s DCG segment and possibly stock price.
Short-Term Headwinds for INTC Stock
Slow growth: Despite the overall quarterly revenue growth, I’d like to remind our readers that Intel’s PC business suffered from lower volume and reported a 6% drop in earnings. In the first half of the year, Intel had reported weakness in its data center business and in Q2 business had seen a 10% drop for sales of chips for data centers.
Although Q3 numbers alleviated some of the fears in DCG, long-term investors may want to see the next quarterly report to appreciate the trend in both business segments.
Competition: If you are shopping for a windows-based PC or laptop, you will notice that there are only two real choices for the CPU, i.e., manufactured either Intel or Advanced Micro Devices (NASDAQ:AMD).
Many analysts predict that the group is likely to continue to claw away market share from Intel in the coming quarters, too. However, it is also important to remember that AMD is still rather small in comparison to Intel.
Trade wars: Tariff wars have been lingering over the broader markets and affecting investor sentiment for almost two years. Unless there is a delay or another development, as of Dec. 15, the U.S. will levy a 15% tariff on around $160 billion of Chinese products, including electronic devices such as smartphones and laptops.
If the current tense rhetoric between the two countries continues, then Intel stock is likely to be adversely affected too.
Technical Charts for Intel Stock Urge Caution
Due to the recent impressive run-up in the INTC stock price, short-term technical indicators have become somewhat overextended. Investors who pay attention to short-term oscillators should note that MSFT also looks “overbought.”
From a technical perspective, I am not expecting Intel stock to make a significant leg up any time soon. Instead, in the coming days, there might be some profit taking. It’s likely that a lot of good news has already been priced into the Intel share price.
If you still believe in the long-term bull case for INTC stock, you might consider waiting for a better time to get long, such as around low-$50 or even high-$40 levels.
Expect nearer-term trading to be choppy at best, possibly until the next quarterly report that is expected in January 2020.
The Bottom Line on Intel Stock
Many investors would like to see Intel’s technological innovations to increase its ecosystem in diverse growth segments, including artificial intelligence (AI), 5G and autonomous driving (AD). These emerging sectors all require data in enormous quantities and at extremely high speeds.
As Intel re-orients itself to rely less on PCs and improves its revenue model to capitalize on the growth of the data business globally, INTC stock price is likely to increase in the new decade, too.
However, in the next few weeks, there may be some profit-taking in Intel shares. Therefore if you already own Intel shares, you may either consider taking some money off or hedging your positions.
Those who do not currently own Intel shares may regard any drop in price to go long INTC stock. And anyone who buys can also enjoy dividend income, which now stands at a yield of 2.2%.
As of this writing, the author did not hold a position in any of the aforementioned securities.