Intel Stock Should Be a Long-term Winner

Intel’s (NASDAQ:INTC) prowess in artificial intelligence (AI), its strong chip-building strategy, and the cheapness of INTC stock are among the catalysts that make the shares worth buying for long-term investors.

Sign of Intel (INTC stock) at entrance of The Intel Museum in Silicon Valley

Source: JHVEPhoto / Shutterstock.com

Also positive for the shares are indications that the company is catching up with its archrival, AMD (NASDAQ:AMD), in critical areas, like AI and chip performance. Additionally, the extremely strong overall demand for chips is likely to keep surging going forward. INTC stock’s price should slowly follow this increase in chip demand.

AI Prowess Will Keep INTC Stock Growing

As I’ve noted in past columns, Intel appears to be meaningfully ahead of AMD when it comes to AI. Meanwhile, Intel and Nvidia (NASDAQ:NVDA) are in a close, tough race when it comes to the technology.

But I have little doubt that, over the longer term, Intel will be one of the chip sector’s main leaders when it comes to enabling AI development and deployment.

In an August article, Raja M. Koduri, senior vice president and general manager of Intel’s Accelerated Computing Systems and Graphics Group, contended that “by speeding up the matrix multiplications at the heart of neural networks, Intel will have the fastest chips for machine learning and deep learning, and any form of artificial intelligence processing,” ZDNet’s well-known tech reporter Tiernan Ray, wrote.

Moreover, Koduri, the executive added that Intel’s Sapphire Rapids data server processors, due out in 2022, are the fastest available for AI workloads. And its GPUs surpassed those of Nvidia in a widely used training benchmark.

In a recent interview, Sandra Rivera, Intel’s executive vice president and general manager of the Datacenter and AI Group, noted that Sapphire Rapids includes advanced matrix accelerators which make it easier for users to run AI workloads. And that Intel’s Habana AI accelerator assets enable users’ total costs to be 40% lower than with Nvidia’s chips. Intel is “getting a lot of traction from customers” that are interested in the Habana accelerator, Rivera reported.

Forbes columnist, Janakiram MSV details in great technical detail how Amazon’s (NASDAQ:AMZN) decision to start supporting Intel’s Habana’s Gaudi AI accelerators on Amazon Web Services (AWS) is huge deal for Intel.

A Good Strategy on Chip Building

Turning to Intel’s new chip manufacturing strategy, its chief executive officer, Pat Gelsinger, plans to spend $20 billion to develop two new chip factories in Arizona and a third, massive $100 billion plant somewhere else in the U.S.. He’s also looking to outsource a portion of the company’s chip production to Taiwan Semiconductor (NYSE:TSM) and use Intel’s plants to make custom chips for other companies.

Given the huge demand for new chips and the inability of chipmakers to fill it, I believe that the new CEO’s strategy will prove to be quite advantageous. The new, U.S.-based plants will enable Intel to help meet the strong, ever-growing demand for chips, thereby boosting the company’s financial results in the long-term. And if China and Taiwan become involved in a war, an ever present possibility, Intel will be very well-positioned to compensate for any production lulls from Taiwan-based chipmakers.

Meanwhile, Gelsinger’s approach will also enable Intel to benefit from outsourcing some production to other companies. The collaboration will ensure that Intel can meet demand while it’s building its plants. The alliances will also enable the chip maker to  benefit from the advantages that other companies’ plants have over those of Intel.

The Overall Performance of Intel’s Chips Is Improving

In a December article, Tom’s Hardware proclaimed, when comparing the CPUs of Intel and AMD, “…for most users, it’s now a blowout win in Intel’s favor.” The website added that, “That’s an amazing reversal of fortunes for [Intel] after its decade of dominance was completely overturned by AMD’s Ryzen 5000 chips.

And PCGames reports that, “Intel Alder Lake CPUs have been around for just over a month, but the 12th gen chips are already a hit with gaming PC and computing enthusiasts alike.” Perhaps not coincidentally, the website cites a report which notes that Intel’s market share in Germany has recently increased to 30%.

Meanwhile, Gelsinger has elaborate plans to continuously improve the speed and overall performance of Intel’s new chips over the next few years. For example, Intel 4, the next evolution in the company’s manufacturing process improvements, will be 20% faster than its immediate predecessor and utilize a relatively new technique called “extreme ultraviolet (EUV) light.”

The Bottom Line on INTC Stock

In addition to all of the positive catalysts that I cited above, Intel’s entire business should also benefit from the strong, rapidly demand for chips, driven by the Internet of Things (IoT) phenomenon, the explosive growth of AI, and the continuous need for more datacenters.

And INTC stock, trading at just 13.5 times analysts’ average 2022 earnings per share estimate, remains extremely cheap.

On the other hand, Intel is spending a great deal of money on building new plants, and many investors don’t like large spending initiatives. Further, Wall Street sometimes takes a very long time to acknowledge corporate turnarounds (as I’ve found out with BlackBerry (NYSE:BB), for example).

Therefore, I don’t expect Intel’s shares to jump much for another year or two, at least. Still, for long-term, conservative investors, Intel’s shares are a good choice.

On the date of publication, Larry Ramer held a long position in BB stock. 

Larry has conducted research and written articles on U.S. stocks for 14 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, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.


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