For most industries, the novel coronavirus pandemic has represented a steep net negative. But in a lucky few cases for the beneficiaries, the global health crisis may turn out to be cynically rewarding. In my view, Intel (NASDAQ:INTC) stock could be primed for just such a circumstance.
Further, the generally frustrating consolidation pattern of INTC stock may later translate into longer-term profitability.
As you’re well aware, the pandemic initially disrupted global supply chains across virtually all industries. Some sectors, such as the supply chain for toilet paper, have thankfully improved, allowing everyday Americans to view the newspaper for exactly its stated purpose, to read the news.
The semiconductor industry wasn’t so lucky. When the Covid-19 crisis first impacted economies throughout the globe, automakers, in particular, cut their inventory order requests. Then, when demand suddenly spiked for personal vehicles and other products that heavily rely on computer chips, semiconductor firms were caught between a rock and a hard place.
Basically, semiconductor production isn’t nearly as nimble as some folks apparently think it is. It takes time to fabricate the chips and directing resources for certain types of semiconductor products also incurs a time-intensive process.
Combined with the age of just-in-time manufacturing, where procurement for individual components of particular products are ordered based on actual demand trends, the circumstance has caused a massive order backlog.
Just by default, INTC stock is a fortunate beneficiary. With every company that needs semiconductors to manufacture their products in desperate straits, the crisis has been a profitability boon for Intel and the broader chipmaking industry.
As well, semiconductor consumers are not going to be choosers in a beggar’s market. Considering that Intel hasn’t kept pace with its rivals, INTC stock essentially “earned” a reprieve due to the pandemic.
And that might be the beginning for Intel in the coming years ahead.
INTC Stock Enjoys a Crowded Field
Whenever I have free time — which is hardly at all these days — I try to catch a few auto races. Those who are familiar with Indycar or NASCAR racing will understand exactly what I’m about to say regarding INTC stock.
For those that don’t, let me provide a quick backdrop.
Ordinarily, a driver running in the lead wants to have a clean race with no incidents — not just for the driver in question but for everyone else. In many if not most racing series, should a serious incident occur, the race director will call for a yellow flag — basically a slowdown period that enables emergency crews to clean up the wreck.
Notably for Indycar or NASCAR, yellow flags result in the entire field being bunched together. Once the director issues a green flag restart, the number two driver suddenly has the advantage. Whatever lead the number one person built is now gone.
In a similar vein, the pandemic has been a yellow flag to the benefit of INTC stock. For years, the underlying company has made a series of unfortunate unforced errors from both a production and ethical perspective. So Intel found itself struggling in the backfield. But with every competitor suffering from the pandemic, it hands the advantage to Intel.
Sure, the competitors that leapfrogged Intel still have their technical advantage — the pandemic won’t touch that aspect. But the thing is, those companies cannot efficiently leverage that technical acumen for the time being.
For instance, the priority for the semiconductor industry is to address the automotive parts shortage as it’s the most mission-critical (and profitable, I might add). That means chipmakers must balance their output toward other needs, such as consumer electronics, lighting fixtures and power infrastructure, among several more segments.
Ordinarily, Intel’s rivals could just meet that demand with their superior tech. But again, that’s not the case in this paradigm.
Not Just a Lucky Break
Having said the above, there might be a temptation to view INTC stock as merely the recipient of good fortune. Moving forward, the industry will rebalance and Intel will move back to the field where it deservedly belongs.
But recent news coming out of the company suggests that’s not the case at all. CEO Pat Gelsinger has been very vocal about his optimism for the Intel brand, with major ambitions targeting the European automotive market.
Moreover, the tech giant is making inroads with its processors, righting a ship that was wronged a few years ago.
It’s not an easy case because betting on a company that suffered deserved troubles is always risky. However, the signs suggest the turnaround at Intel is credible, and the pandemic may be the catalyst to push INTC stock into overdrive.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.