Stuck in a trading range for months, Intel (NASDAQ:INTC) stock is not standing still.
The chip giant is fending off competitive pressures from Advanced Micro Devices (NASDAQ:AMD) by cutting prices. This will help INTC gain back some market share temporarily. It will need to do more to sustain its consistent dividend and to return to growth.
In April, Intel launched a 10-nanometer data center computer chip. this is a third-generation Intel Xeon Scalable processor, called Ice Lake. The chip will give artificial intelligence, high-performance computing, cloud and networking workloads a performance increase. The Intel CPU will have 40 cores, eight channels of memory per socket, and as many as 64 lanes of PCIe per socket. The specifications will impress Intel’s customers.
By moving to PCIe Gen4, the system will provide a doubling in bandwidth. Furthermore, the interconnect rates will increase by around 7.7%.
Despite the refresh, Intel may not offer enough. AMD’s EPYC 7002 processors have up to 64 cores and 128 threads. The AMD server chip has 128 PCIe 4.0 lanes, too.
To gain back market share, Intel must lower prices for its server chips while AMD suffers from a server CPU shortage. In the first quarter, AMD could not take advantage of its technical lead due to a supply shortage. It launched EPYC 3 server processors in March. Customers include Microsoft (NASDAQ:MSFT) Azure, Amazon (NASDAQ:AMZN) Web Services and Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google Cloud.
Product Refresh
Intel plans to ramp up CPU volumes for its next-generation Eagle Stream platform. This will probably happen in the second quarter of 2022. But by then, AMD could reach a 15% server market share. By then, AMD will launch EPYC Zen 4, code-named Geno. This chip will have up to 96 cores and 12-channel DDR5 memory.
In the self-driving market, Intel will team up with Sixt SE, a German mobility services company. Through Intel’s Mobileye unit, the companies will start offering a driverless robotaxi service in Munich starting in 2022. Mobileye is usually quiet about its self-driving system. This time, it is publicly announcing Mobileye Drive to showcase its fully integrated self-driving system.
Intel’s Mobileye has a large addressable market for self-driving systems. For example, driverless ride-hailing services and commercial customers will implement Mobileye’s system. After it tests robotaxis in Munich next year, it will move to commercial operations after getting government regulatory approval.
Capacity Expansion
Instead of relying on third parties for chip production, Intel will expand its capacity. It will build new chip-making facilities in Europe. This will cost up to $95 billion. Intel Chief Executive Officer Pat Gelsinger said:
This new era of sustained demand for semiconductors needs bold, big thinking.
The chip shortage is unlikely to ease soon. By increasing its capital investments for two chip factories in Europe, Intel will take on companies like Samsung and Taiwan Semiconductor (NYSE:TSM). The price tag sounds high, but European governments may offer generous tax breaks and subsidies to help pay for the expansion plans.
The chip volume per automobile is rising steadily. In the next decade, Intel will expand its profit margins for chips used in vehicles and computers.
Opportunity
Special purpose acquisition companies like Ouster (NASDAQ:OUST) and Velodyne Lidar (NASDAQ:VLDR) cashed in on the autonomous vehicle craze in the last year. Ambarella (NASDAQ:AMBA) broke out to highs recently, too. Yet Intel’s Mobileye unit gets no recognition for its future contribution to Intel’s bottom line.
Investors may start a position in the beat-up chip giant. INTC stock trades at considerably lower valuations compared to AMD. Its price-earnings ratio is around 12. AMD’s stock price trades at a premium at around 40x earnings. Graphics card supplier Nvidia (NASDAQ:NVDA) trades at almost twice that of AMD stock.
Chances are good that value investors will flock back to Intel stock in the next few months. They will seek chip companies that are spending more to expand their capital. Intel offers a low-risk exposure for technology investors.
Fair Value
Intel stock scores well on value and quality.
Investors get a cheap stock in return for mediocre growth. Intel’s growth prospects improve as it rolls out new chips. Margins will expand in the next few years as it manufactures computer chips in-house. Conversely, fabless competitors rely on a third party. They risk supply shortages. Margin pressures are another risk if the supply demands better terms.
Your Takeaway on INTC Stock
Intel is a good long-term investment. When the technology index is valued at all-time highs, dependent on temporarily low interest rates, INTC stock will withstand a market sell-off.
On the date of publication, Chris Lau 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.
