Bob Swan, who was chief financial officer becoming CEO, recruited Pat Gelsinger from VMWare (NYSE:VMW) to succeed him. Gelsinger took office in February, with the stock not too far from its current $55/share level. He then announced the transformation of the company. He plans to invest $100 billion to make Intel a chip foundry against Taiwan Semiconductor (NYSE:TSM).
It’s a bold plan. Chip manufacturing is now dominated by Taiwan. Increasingly it’s being done in China. Re-shoring semiconductor production to the U.S., and even to Western Europe, is a decade-long undertaking.
Su became CEO in 2014, with AMD bouncing around $3/share. But her appointment came at the end of a process that began with AMD shedding its foundries and committing to new designs under her predecessor, Rory Read. She had it easy.
Only the Beginning
If you’re buying Intel today and expecting it to perform like AMD, you’re making a mistake.
That doesn’t mean you’re wrong to buy Intel stock. I have. The company sports a dividend yielding over 2.5%. You can’t get that from a 30-year bond. Intel has delivered over $6 billion in free cash flow over the first half of the year. Net income for the first half came to $8.4 billion, on sales of $39 billion.
Intel is a safe bet right now, with a price to earnings ratio of just 12. It shouldn’t be classed as a tech stock at all. It’s a manufacturer, like steel maker Cleveland Cliffs (NYSE:CLF), which sports a similar PE.
What you’re buying with Intel isn’t the next quarter, but the next 5 years. Gelsinger has set forth an ambitious plan to match Taiwan Semi’s process technology. Where the distance between circuit lines on a chip has always been measured in nanometers, with Chinese chips at 14 and next year’s Taiwan Semi chips at 3, Gelsinger is talking about Angstroms. That’s a tenth of a nanometer. The chips on his 2025 roadmap will have lines 20 Angstroms apart.
If Gelsinger can deliver, the chip industry will be transformed. Leadership will switch sides of the Pacific. America will become independent of Chinese technology.
But this is still speculation. Gelsinger needs government help to meet his budgets. Right now, he seems to be getting it, but the governments are speculating too. If his engineers can’t deliver on his promises, the whole country is in trouble, not just its tech sector. What Gelsinger is trying is literally a moonshot.
The Bottom Line on INTC Stock
That’s why stock analysts remain skeptical. There are 26 currently following Intel at Tipranks, and 7 of them are telling clients to sell. Only 9 say buy. Stacy Ragson of Bernstein, who is usually right in his calls, has a price target of $43 on Intel stock.
But if you’re looking for a fast profit, please look elsewhere. If you’re looking to for a stock that will go “to the moon” overnight, don’t buy Intel.
Instead, investors should accumulate Intel, slowly. Right now, Intel is the ballast of a balanced portfolio. It’s not going to deliver “alpha.” Not right away. Watch the Intel roadmap carefully for any sign of slippage. There may be some dark days ahead in the immediate future.
I believe in America. I believe in Pat Gelsinger. I believe in Intel. This is the home of Moore’s Law. This is where our current age began. This is the most essential company in the country.
But this is not going to be a fast profit. It took Intel 2 decades to get into its present predicament. It will take years to climb out of it.
On the date of publication, Dana Blankenhorn held long positions in INTC and CLF. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future available at the Amazon Kindle store. Write him at firstname.lastname@example.org or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.