Ever since semiconductor chip giant Intel (NASDAQ:INTC) announced yet another delay on its next-generation computer processors, shares traded below the $50 line. Intel stock is still a great value buy, paying a dividend that yields almost 3% and at a price-to-earnings of 10 times, but astute investors are justified in shunning the stock despite favorable valuations.
As long as Advanced Micro Devices (NASDAQ:AMD) takes Intel’s desktop and server market share through Ryzen and EPYC, respectively, Intel looks unattractive. But Intel’s Tiger Lake preview at Architecture Day 2020 gives shareholders hope.
Intel’s Ice Lake chips are 10nm, behind AMD’s 7nm Ryzen 4000 chips. And 7nm CPUs are not ready until 2022 at the earliest. This gives AMD over two years in lead time. How might Intel catch up?
Tiger Lake is Intel’s 11th-generation processor. It uses a new SuperFin transistor, a 10nm solution. Intel claims that a new SuperMIM (metal-insulator-metal) capacitor will give a five-fold increase in capacitance. In real-world terms, it will cut voltage and increase transistor and product performance.
The market’s lack of higher buying in Intel stock in the last week suggests that investors do not care about the development. The stop-gap solutions will not stop AMD from taking its market share.
A Closer Look at INTC Stock
Intel still has plenty of cash on hand and a big marketing budget. Conversely, AMD is the favored vendor for the do-it-yourself crowd and relies on word of mouth for sales. But as AMD’s cash flow grows, its advertising budget will increase. Eventually, AMD advertisements will drive chip sales at a higher pace.
Intel stock has a positive catalyst in the 10-nanometer product is only delayed but not canceled. As it ramps up the product refresh in late 2022 and 2203, it needs to minimize market share loss. It may lower its production costs and tweak its average selling price to remain competitive.
The 14-nanometer product still offers customers decent power draw relative to the CPU’s performance. Attractive prices will deter customers from buying AMD. This will hurt Intel’s profitability in the near-term. Still, by slowing the market share loss, it will buy time. The product schedule slippage is double the previous delay forecast, at four quarters.
Fair Value and Intel Stock
Intel has a fair value of $66. It scores a 94/100 on value (based on several metrics, including price-to-earnings and EV/EBITDA).
Intel stock has a quality score of 99/100, based on metrics like net margin and return on invested capital (according to Stock Rover). Based on its future cash flow discounted to present value, SimplyWall.St thinks that Intel is worth $76.00.
In the seasonality chart below, Intel is about to enter a period of upside starting in Sept.
To trade to the $66 – $76 level, Intel will need a few quarters to win back investor trust. It can no longer miss deliverng on product milestones. A cyclical downtrend must end, soon.
Micron Technology (NASDAQ:MU) CFO David Zinsner warned that its first-quarter revenue will miss the company’s guidance. So, until the market works off a glut in DRAM and NAND chips, profit margins may lag for the major chip suppliers.
Intel is a near-term disappointment. Fortunately, the stock’s big sell-off post-earnings created a steep discount for value-oriented investors willing to bet on a rebound. If Intel meets its revised timeline for 10nm and 7nm chip development, it will not lose much more market share from AMD.
Intel is a well-established brand. Its success is critical for customers because the competition between it and AMD will keep desktop chip prices low. At affordable prices, everyone wins. Intel will enjoy higher unit sales and growth while customers get lower prices.
Disclosure: As of this writing, the author did not hold a position in any of the aforementioned securities.