Back in the 1990s, the shares of Intel (NASDAQ:INTC) and Microsoft (NASDAQ:MSFT) would grow in lock-step. They were two of the surest things in the investment world.
But over the past few years, while Microsoft stock has regained its footing, the situation has not been so good for Intel stock. Keep in mind that the chipmaker has been dogged by quality problems, shortages, and delays.
However, lately things have been perking up. Since August, Intel stock has gone from $47 to $66 for a gain of 40%.
It certainly helps that Intel has been showing more progress with its earnings growth. During the fourth quarter, revenues came to $20.21 billion and profits were $1.52 per share. Yes, this was a nice beat, as the consensus was looking for $19.23 billion on the top line and earnings per share of $1.25.
If you dig into the quarterly results, you will see some nice trends. For example, a key strategic initiative has been the focus on data-centric businesses, which recorded 19% year-over-year growth to $7.21 billion (the Street, on the other hand, was forecasting $6.4 billion). A critical driver was the strength with the Data Center Group. Consider that there remains considerable momentum with the 2nd-Generation Intel Xeon Scalable processors.
The Internet-of-Things group also was a bright spot. In the quarter, this segment saw 13% growth, thanks to the momentum in the retail and transportation verticals.
Furthermore, Mobileye continues to be strong. The division, which focuses on sophisticated auto safety systems, reported revenue growth of 31%. As announced at the CES 2020 conference, the company has shipped more than 54 million EyeQ chips since inception.
The AI Factor
Artificial Intelligence (AI) is one of the fastest growing segments of the tech world. Intel has been pursuing this opportunity aggressively. Note that the Xeon processors have proven effective with AI data center workloads.
According to Intel CEO Bob Swan on the earnings call:
Xeon’s AI performance will take another step in the first half of 2020 when our third-generation Xeon scalable processor Cooper Lake debuts. Cooper Lake features new Intel DL boost extensions for built-in AI training acceleration providing up to a 60% increase in training performance over the previous family.
Actually, last year, the company’s AI-based revenues came to $3.8 billion. Intel estimates that the opportunity is expected to reach $25 billion by 2024.
M&A is also playing a role. Intel recently shelled out $2 billion for Habana Labs, which is a developer of AI-based chips for the data center. Essentially, the company helps manage the huge workloads for data models.
Bottom Line on Intel Stock
The growth for Intel is still expected to be somewhat sluggish. Based on the company’s guidance, the top line is forecasted to increase by only 2% for the full-year. Then again, there are headwinds in China and increased competition from companies like AMD (NASDAQ:AMD) and Nvidia (NASDAQ:NVDA). It’s also important to note that the lift from the sun-setting of support from Microsoft’s Window 7 will trail off.
All this helps explain why Wall Street analysts are not seeing big moves in Intel stock. For example, the average price target is at $66. In other words, even with the recent positive developments, I think the run for Intel stock may be over.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s. As of this writing, he did not hold a position in any of the aforementioned securities.
