Intel (NASDAQ:INTC) is trending today on news of a planned spinoff. The multinational tech conglomerate has announced that its programmable chip business, Programmable Solutions Group (PSG), will be treated as a standalone business. That means it will trade on its own and will ultimately seek an initial public offering (IPO). While that public debut won’t happen for at least two to three years, the market is reacting well to this news. INTC stock rose yesterday after hours, and it has continued mostly trending upward today.
This suggests that Intel could be a stock to watch. Investors are seeking out new plays on the booming chip market. But while the artificial intelligence (AI) boom is still taking chip stocks higher, the time is ripe for gaining exposure through companies beyond sector leader Nvidia (NASDAQ:NVDA).
Does this mean that Intel should be counted among AI stocks to watch as it works toward the spinoff? Let’s take a closer look at the two companies and assess what investors should be expecting.
What’s Happening With INTC Stock
News of Intel’s intended spinoff broke yesterday after markets had closed. However, INTC stock quickly jumped 2.3% in after-hours trading. While it has been volatile since markets opened this morning, INTC rose fairly quickly. INTC stock has been struggling today but recently made it back into the green, and it is likely to begin rising again. This is the type of announcement that investors want to see.
The new Programmable Solutions Group will be led by Sandra Rivera, an executive who helped lead Intel’s data center and AI expansions. While Intel will produce the new company’s chips and remain a majority stakeholder, PSG will have its own balance sheet and may seek partnerships with private investors. Per CNBC:
“The move follows Intel’s spinoff last year of Mobileye its self-driving subsidiary, and continues a strategy under CEO Patrick Gelsinger to control costs and focus on the foundry business and core processors in an effort to catch .Taiwan Semiconductor Manufacturing Co in manufacturing by 2026. Intel acquired the FPGA business when it bought Altera for $16.7 billion in 2015.”
Since the spinoff, Mobileye Global (NASDAQ:MBLY) has performed well, rising more than 36% over the past year. It’s true that the new company operates in the field of autonomous driving technology, a booming market that offers investors ample opportunity for growth. Yet, the chip market is still growing as well. Intel’s move to spin out PSG highlights that demand is still strong, particularly for field programmable gate arrays (FPGAs), a type of integrated circuit for which Intel is doubling down, hence its Altera acquisition. The company is making strategic moves to continue securing a share of this lucrative market.
What Comes Next
It’s true that the PSG IPO won’t be happening in the immediate future. That means that the current momentum will ultimately pass. But investors should take this news in context. As InvestorPlace‘s Louis Navellier notes, Intel is increasingly revealing itself to be a stock to buy for the ongoing chip boom. While INTC stock has struggled this year, he notes its recent improvements, giving the company credit for its turnaround plans.
If Intel’s progress regarding the PSG spinoff continues, INTC stock is likely to benefit as investor interest rises. The chip boom isn’t likely to stop any time soon, and Intel could represent an undervalued growth play that investors shouldn’t overlook.
On the date of publication, Samuel O’Brient 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.
