Intel (NASDAQ:INTC) stock is the Rodney Dangerfield of chip stocks. It gets no respect in spite of it bring the behemoth in the field.
Intel is larger than its two main competitors Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD) put together and about twice over.
However, the INTC stock value has accumulated to extremes. That’s not a compliment since it means it is now dirt cheap in absolute and relative terms.
Moreover, the stock markets just corrected as harshly as they have in a long time. The small-caps led the freak out, but the Nasdaq finally almost caught up to it. From high to low, the QQQ lost almost 19% of its value. Intel stock, on the other hand, started its slide in January of 2020. Well, that’s an unfair statement because it did recover the whole thing last year. Then it restarted a replica correction in April last year. From high to low, it lost more than 30% of its value.
At least this last bit was not through any fault of its own. Nvidia and AMD stocks lost even more through Jan. 24 and 28, respectively.
What’s working for Intel fans is a simple truth about support levels. Since October 2017, every time it fell below $48 per share it found buyers. Therefore, it is reasonable to assume that this correction presented opportunities to engage on the bullish side.
INTC Stock Value Is Reason Enough for Now
Nvidia and AMD have hogged the headlines because consensus is that they are out-innovating Intel. That may have truth behind it but that doesn’t mean that INTC stock is garbage.
In fact, under $48 per share, the downside risk is finite. As for the intangible opinions, they are fickle. I bet this year INTC could come back in style. They have the money, the customer base and the know-how to recapture investor attention. Meanwhile, AMD is up 12% on its earnings report. NVDA is up 5% in sympathy, while INTC is down a little at the open.
Demand for technology is rising at an exponential rate. This is not a fad and the trend will last for years. Therefore, all three of them have room to grow without restrictions.
For the next few weeks, I still worry about the overall market conditions. Wall Street has lost its sharp bullish edge, and I attribute that to the stupor of 2020. There is a chance the indices pull through this, but we need to see more confidence on headlines.
The rally back out of the pandemic crash was silly, and the correction was necessary to correct that. True to form, investors swung the pendulum too far in one direction. Now they are swinging it too far in the other. While we have already seen almost a 20% correction in the Nasdaq, that doesn’t mean it cannot extend another 10%. This is a scenario triggers if we lose the lows from late January.
Headline Risks Still Loom
This week we will find out more about the job situation in the U.S. If the report comes out too hot, it may rattle investors a bit. The worry is that the Federal Reserve will be too aggressive raising rates. In reality this is an unrealistic fear, because they are not likely to break the economy that they just fixed. Nevertheless, engaging all in INTC stock is a mistake.
The proper course when uncertainty is this high is to take positions in tranches. Investors should not have absolute conviction in their thesis regardless of how good they are.
I am confident that INTC stock presents a good value. But I am less sure that the market is not willing to take another tumble. I can mitigate some risk by using options to build a buffer. But alternatively investors should just take smaller bites and leave room to average in, not average down.
On the date of publication, Nicolas Chahine 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.
Nicolas Chahine is the managing director of SellSpreads.com.
