Intel (NASDAQ:INTC) was having a good run of things through 2019 and into 2020. Despite continuing to lose ground to rival Advanced Micro Devices (NASDAQ:AMD), ongoing processor production challenges, new vulnerabilities in its chips, and abandoning its 5G smartphone modem business, Intel stock performed well.
Between the start of 2019 and its high point this January, INTC gained 46%. At $58.75, Intel has recovered much of the ground it lost during the March market sell-off, but does it have room for a full recovery — or even further growth — in 2020?
The biggest challenge the company faces in 2020 is shaping up to be global PC sales. With the novel-coronavirus impacting everything from supply chains to retail store closures, PC sales are getting clobbered.
PC Sales Experience Biggest Drop Since 2013
One of the reasons for Intel’s performance over the past year was the unexpected return to growth of PC sales. The final three quarters of 2019 saw PC shipments increase after years of decline or flat demand. Obviously, this was good news for Intel stock, even if the company was battling with an aggressive AMD to maintain market share.
That good news came to a crashing halt in Q1 2020. According to Gartner, the coronavirus pandemic disrupted both supply and demand for computers. The result was a 12.3% year-over-year decline in PC shipments. That’s the steepest quarterly drop since 2013.
In an earlier report, Gartner also projected that global PC shipments will continue their decline through 2020, 2021 and 2022. This was due largely to the fact that the bump in sales from consumers switching to Windows 10 has largely run its course.
Last week, Intel delivered its first quarter earnings report. The company delivered solid numbers that beat estimates, including adjusted per-share earnings up 62.92% year-over-year, and a 22.98% increase in revenue.
Despite the earnings and revenue beats, INTC stock immediately dropped in after-hours trading. Concerns include the prospect of lower margins and the potential hit to sales if the economy contracts.
AMD Warns About Coronavirus Impact
Intel’s computer processor rival AMD reported its own quarterly earnings this week. AMD says it continues to gain marketshare against Intel in the PC market, but issued revenue guidance for Q2 that was lower than analysts had expected. The company also delivered commentary about how the coronavirus pandemic could impact sales for the rest of 2020 (via Bloomberg):
While demand indicators across commercial, education and data center infrastructure markets are strong, we expect some softness in consumer demand in the second half of the year depending on how overall macro-economic conditions evolve.
The same issue that AMD is concerned about — a post-coronavirus recession triggering a slowdown in consumer PC sales — is also applicable to Intel.
What About Data Centers?
Both Intel and AMD have spiked out cloud computing and data centers as an area where growth is expected to continue. Given the load that cloud services — from Amazon (NASDAQ:AMZN) to Netflix (NASDAQ:NFLX) — have been under during the coronavirus lockdown, a big short-term sales bump in their server chips is almost inevitable.
However, it may be more than just a bump. After several years of slowing sales, cloud service providers began buying new hardware in earnest as 2019 wound down.
The challenge for Intel will once again be Advanced Micro Devices. AMD is aggressively pushing its EPYC processors, which are beginning to win a bigger share of the data center market. Last November, AMD scored a big win on that front when its latest EPYC processors were adopted by Chinese internet giant Tencent (OTCMKTS:TCEHY).
Bottom Line on Intel Stock
Intel’s Jan. 24 close of $68.47 was its highest since the dotcom bubble burst. And the factors that powered it to that level are questionable in the coronavirus aftermath.
At its current $58.75, most analysts feel Intel stock has little upside over the next 12 months. Among those polled by CNN Money, the average price target of $62 offered just 4% growth potential.
In other words, there’s little obvious gain in jumping onboard the Intel train at the moment. Nor is there any compelling reason to sell your shares. With the long-term ramifications of the coronavirus pandemic still unknown, now is probably a time to take a wait-and-see approach on Intel.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.