- Intel’s (NASDAQ:INTC) revenue forecast fell short of estimates as the company contends with inflationary pressures and supply issues.
- The company recently acquired a non-chip business that should deliver value to shareholders.
- Investors should keep INTC stock on their watch list and pounce where there’s more clarity on supply-and-demand issues.
Microprocessor manufacturer Intel’s (NASDAQ:INTC) second-quarter guidance showed the tech icon is not immune to the global issues plaguing most businesses. The company reported better-than-expected first-quarter adjusted earnings of 87 cents per share, while revenue of $18.4 billion came in slightly ahead of estimates.
However, INTC stock sold off in after-hours trading as its revenue guidance disappointed the Street. Management forecast revenue of $18 billion for the second quarter, versus an expected $18.3 billion, citing economic uncertainty and slowing PC demand.
Semiconductor stocks have been struggling in recent months despite chip sales reaching an astounding half a trillion dollars ($555.9 billion to be more precise) in 2021. The sector has been hit by concerns that the chip shortages may turn into a supply glut as demand slows, even prompting one Wall Street analyst to call chip stocks “almost uninvestable.”
Yet, Intel’s business doesn’t solely consist of semiconductor sales, and a recent acquisition will help to diversify Intel’s business model. Whether this will be enough to move the price of INTC stock higher remains to be seen.
This probably isn’t the ideal time to take a position in INTC stock, but it should be buyable at some point in the future.
| INTC | Intel | $412.00 |
Intel Looks to Diversify Amid Chip Challenges
It’s surprising how little coverage Intel’s latest acquisition received. In late March, Intel announced it will purchase Granulate Cloud Solutions Ltd. This Israeli company develops real-time continuous optimization software.
According to the press release, Granulate’s autonomous optimization service reduces CPU utilization and application latencies “by learning the customer’s application and deploying a customized set of continuous optimizations at runtime.” Consequently, users can improve application performance, as well as drive down cloud and data center costs. According to Granulate co-founder and CEO Asaf Ezra, Granulate and Intel “can help customers achieve meaningful cost reductions and five times the throughput across workloads.”
This acquisition should certainly stand Intel in good stead as a more diversified business at a time when the chip industry is under pressure.
Analysts have been cautious to downright bearish on chip stocks. Evercore ISI analyst C.J. Muse went as far as saying, “From an investment perspective, semiconductor stocks are almost uninvestable today.”
Muse said the short-term outlook for the sector is cloudy at best, noting investors are waiting for reduced forecasts as management teams begin to see supply overtaking demand. “Investors want to buy the ‘cut,’ but that ‘cut’ may not happen until 2H22 at the earliest,” he posited.
Until the dust settles and we get more clarity, Muse recommends investors sit on the sidelines: “Our sense is violent swings will be the new norm (both up and down) until we gain line of sight to whether we will see a soft or hard landing.”
The Bottom Line on INTC Stock
If anyone is under the impression that all technology stocks are overvalued, think again. Intel’s trailing 12-month price-to-earnings ratio is below 10, suggesting shares are a good value.
Intel also offers a forward annual dividend yield of 3.2%, which is decent for a technology company. Furthermore, buying INTC stock means owning a piece of a world-renowned tech giant that continues to innovate and diversify its business.
Unfortunately, the big picture is murky as macroeconomic and supply issues persist. Therefore, it’s wise to take a wait-and-see approach with Intel.
On the date of publication, David Moadel 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.
