Semiconductor stocks have been on fire since late March on optimism that the novel coronavirus impact on the global semiconductor market will be both short-lived and not-that-big. That optimism gained credence in late June, thanks to strong earnings reports and updates from Micron (NASDAQ:MU) and Xilinx (NASDAQ:XLNX), and semiconductor stocks continued on their blistering rally. The world’s largest semiconductor company, Intel (NASDAQ:INTC), has been no exception. From its March lows, INTC stock has risen more than 35%.
I think this is a rally worth buying into. Intel stock will only go higher from here over the next six to 12 months. Here’s four big reasons why:
- The fundamentals in the global semiconductor market are going to dramatically improve for the foreseeable future, thanks to super-charged demand in the cloud and 5G end-markets.
- Intel is the largest player in the data-center market, with a scorching hot data-center business. That market – and that business – will only get hotter over the next few months.
- Intel is in the process of launching a new wave of next-gen, 10-nanometer products, the sum of which should help the semiconductor giant regain lost market share in 2021 and 2022.
- INTC stock continues to trade at an attractive valuation for a company with broad exposure to so many hyper-growth verticals.
Net net, I say buy INTC stock below $60, and hold for the next six to twelve months.
Improving Fundamentals
The fundamentals underlying the global semiconductor market will dramatically improve over the next few months thanks to super-charged demand in some of the industry’s critical end-markets.
Just look at all the demand catalysts on the horizon for the semiconductor market.
Workflows are increasingly being digitized thanks to Covid-19. Even if “normal” returns and offices re-open, business investment into cloud technology and infrastructure will only accelerate going forward.
Meanwhile, looking into the back-half of 2020, Apple (NASDAQ:AAPL) is going to launch the 5G iPhone, while Microsoft (NASDAQ:MSFT) and Sony (NYSE:SNE) are going to launch their next-generation gaming platforms. Naturally, these once-in-a-decade product launches will spark supercharged demand in the smartphone and gaming end-markets.
There’s also the broader 5G demand driver here, as the global roll-out of 5G over the next few quarters should dramatically advance edge computing capabilities, which should allow for the emergence of an entirely new class of IoT devices and self-driving technology.
Net net, the fundamentals supporting the semiconductor market will only get better – and arguably, way better – over the next few months.
Strong Data-Center Tailwinds
One of the strongest drivers of semiconductor market strength over the next few months will be super-charged data-center demand, as companies across the globe virtualize their offices and workflows, and pivot towards cloud-hosted infrastructure.
That’s great news for Intel stock.
Intel is the 800-pound gorilla in the data-center market. Globally, Intel owns over 95% of the data-center CPU market.
More than that, Intel’s data-center business is showing signs of promising strength amid increasing end-market demand. Last quarter, Intel’s Data Center Group reported revenue growth of 43%.
Connecting the dots, increased data-center end-market demand amid a global corporate pivot toward the cloud over the next few months will show up favorably on Intel’s income statement in the form of sustained big growth from its Data Center Group.
That sustained big growth will help push INTC stock higher.
Recharged 10nm Momentum
Arguably the best reason to buy INTC stock today is the company’s new portfolio of 10-nanometer products.
Long story short, Intel fell behind on the innovation curve. While competitors like Advanced Micro Devices (NASDAQ:AMD) have been in full-production mode of next-gen, 10-nanometer chips over the past few years, Intel had yet to launch a comparable next-gen, 10-nanometer product.
Until this year.
Intel is finally unveiling a new portfolio of 10-nanometer products. This new portfolio of next-gen products gives Intel the tools it needs to regain lost market share in 2021 and 2022.
If the company successfully executes this opportunity, then Intel’s growth trajectory will meaningfully improve. Wall Street will gain more confidence in Intel management. And INTC stock will push significantly higher.
Intel Stock Is Attractively Valued
Considering the company’s broad exposure to multiple hyper-growth verticals, Intel stock is about as attractively valued as it gets.
Cloud. 5G. Smartphones. IoT. Self-driving. AI. These are all the hyper-growth verticals to which Intel has exposure. Yet, despite that broad growth exposure, Intel stock trades at a non-growth valuation.
Specifically, INTC stock trades at about 12.5-times forward earnings, with a 2.2% dividend yield.
In other words, with INTC stock, you get big growth exposure, at a value stock valuation. That’s an attractive combination which simultaneously implies strong upside potential and limited downside potential.
Bottom Line on INTC Stock
I like Intel stock over the long haul. You have the biggest company in a steady growth market and with exposure to multiple hyper-growth verticals. And, it’s at a stock price that’s trading at a discounted valuation.
Over the next few months, I especially like INTC stock. The semiconductor market is perking up. There are huge demand catalysts on the horizon. Especially in the data-center market, which Intel overwhelmingly dominates. And the company has a slew of new products which position the company for big growth in 2021 and 2022.
Overall, I say buy INTC stock below $60, and hold for the next six to 12 months.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been recognized as one of the best stock pickers in the world by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he was long MSFT.
