The Evidence Shows That Intel Stock Is Undervalued

Amid additional evidence that the demise of Intel (NASDAQ:INTC) has been greatly exaggerated, I remain upbeat on Intel stock.

intel stock
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Many pundits and analysts have worried that the delay of Intel’s 7nm chips due to manufacturing problems will cause Intel’s market share to drop drastically, with Advanced Micro Devices (NASDAQ:AMD) stealing many of its customers.

That, in turn, will badly hurt Intel’s financial results and Intel stock, the bears have warned.

Intel’s transition to 10nm chips was also postponed, yet the company’s top line continued to grow meaningfully, a Seeking Alpha columnist pointed out recently.

Indeed, the company’s revenue rose from $62.7 billion in 2017 to nearly $72 billion in 2019. During the same period, the chip maker’s operating profit jumped from $18.3 billion to $22.43 billion.

Those stats make me believe that Intel will, in all likelihood, be able to greatly improve its financial results going forward.

Intel Is Better Positioned to Overcome the Delay

As I’ve written previously, Intel has effectively used artificial intelligence, or AI, along with other technologies, to improve its latest chips. Specifically, I noted that the company says that its new Tiger Lake chips, using AI, help computers to perform common tasks more quickly while utilizing less power.

And Intel says that the chips “are 24% faster than AMD’s Ryzen laptop chip for common processing chores, as much as twice as fast for video editing and 146% faster for online gaming.”

As I’ve shown, in past years before Intel was able to utilize AI to enhance its chips to such a large extent, the company was still able to rapidly grow its top and bottom lines, despite the delay of its 10nm chips.

Now that the company is able to use AI to compensate for most or all of the delay’s impact, the effect of the postponement on Intel’s financial results should be much less intense.

Moreover, with PC and laptop sales up due to the work-from-home trend and the demand for datacenter chips growing very rapidly, Intel’s growth actually looks poised to accelerate going forward.

Off to a Good Start

The demand for Intel’s new Tiger Lake chips appears to be off to a very good start. As I noted in my previous column, Intel already anticipates that the new Tiger Lake chips will be incorporated into more than 150 laptop designs.

Now some of those wins have been announced, and they are pretty impressive. Specifically, HP (NYSE:HPQ), Dell (NYSE:DELL), and Asus – three of the largest laptop makers in the world – have all developed multiple laptops that incorporate Intel’s Tiger Lake chips.

Asus is launching “a family of Tiger Lake (laptops)” this month, according to NotebookCheck, Meanwhile, Dell is incorporating Tiger Lake into its XPS 13 and XPS 13 2-in-1 that also became available in October. (The 2-in-1 laptop can be converted into two laptops.)

Finally, HP is selling three new laptops that utilize Intel’s newest chips. HP reported that the devices will be available this fall.

The Bottom Line on Intel Stock

In the past, Intel’s financial results have improved significantly even though it has had to delay shrinking the size of its chips. Given the company’s technology advances and the more favorable environment for chip makers, Intel’s ability to overcome its delays is actually much stronger now than in the past.

Meanwhile, with Intel stock trading at a forward price-earnings ratio of just 10x, the market seems to be pricing in zero growth for the company. The shares’ low valuation, along with the company’s favorable growth outlook and 2.5% dividend yield, make the shares a worth buying for long-term value investors.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Larry 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. Among his highly successful contrarian picks have been solar stocks, Roku, Plug Power, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.


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