Strong, Positive Catalysts are Fueling Intel Stock’s Long-Term Potential

In the short term, Intel (NASDAQ:INTC) is benefiting from increased sales of PCs and the market share it’s gaining from AMD (NASDAQ:AMD). Over the longer term, the chip maker is still poised to get a boost from the tremendous growth of the cloud and artificial intelligence. Meanwhile, given the chip maker’s favorable outlook, the valuation of INTC stock is quite attractive.

Strong, Positive Catalysts are Fueling Intel Stock's Long-Term Potential
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Chris Caso, an analyst at Raymond James, wrote on April 6 that Intel is “exposed to the right end markets for this pandemic,” such as notebooks and data centers. Two day later, Intel CEO Bob Swan, confirmed that Caso’s research was accurate.

Specifically, Swan said that demand for the company’s chips had risen in the first quarter. That trend, in turn, was driven by increased sales of PCs in the wake of the work-from-home trend.  Swan told Bloomberg TV:

“Where our lives are disrupted and we need to do more and more things from our home, we need to ensure we have the technology at our disposal so things can go on as normal as possible. What that has meant is demand for more and more devices, including PCs, for parents to continue to conduct their work and for kids to continue their education.”

Meanwhile, as I previously predicted, Intel’s share of PC chips apparently increased at AMD’s expense. The larger chip maker had an 81.25% share of PC processors in March, up from 78.2% in February,  the March Steam Hardware & Software survey found. In March, AMD’s share came in at 19.75%.

In previous columns, I contended that price cuts and quality improvements would enable Intel to take market share from AMD. That appears to be happening. And although I have described the phenomenon as a short-term catalyst for Intel, I think it could continue for some time, meaningfully boosting Intel stock in the process.

Longer-Term Positive Catalysts

As I noted in a previous column, Intel is benefiting from “strong demand from cloud infrastructure companies.” Specifically, I noted that the “company’s revenue from cloud infrastructure vendors soared 48% YOY,”

Recent comments by IBM’s new CEO, Arvind Krishna, indicate that the growth of Intel’s revenue from such companies is likely to accelerate in a big way in coming years. Out of the three critical points that Krishna identified for IBM, the hybrid cloud is an integral part of two of them. That is a good indication of how lucrative the hybrid cloud will continue to be for large tech firms, including Intel.

Further, Krishna named AI as one of two important “strategic battles” for IBM (The hybrid cloud was the other he identified). Once again, the new CEO’s strong emphasis on AI strongly suggests that it will be a key growth catalyst for most large tech companies going forward.

As I pointed out in a previous column on Intel, the chip maker now appears to have a strong competitive advantage in AI over all of its rivals. Moreover, I noted that demand for the company’s Cascade Lake chip was very strong because of what the company’s CFO had called its “unrivaled AI (artificial intelligence) performance.”

Bottom Line on INTC Stock

In the short term, Intel is benefiting from higher sales of PCs and market share gains. Over the longer term, it will be boosted by its strength in the cloud and AI. Meanwhile, its forward price-earnings ratio, based on analysts’ average 2020 earnings estimate, is 12. That’s well below the market’s average valuation and very low for a top-notch tech company whose revenue is expected to increase slightly this year, despite the recession.

Given these points, I recommend that investors buy INTC stock at its current levels.

Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer. 

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