Founded in 1968 and headquartered in California, Intel Corporation designs, manufactures, and sells essential technologies for the cloud, smart, and connected devices all over the world. The company has caught the interest of many investors especially after several prominent value investors have made Intel a core part of their investment portfolios. It’s easy to see why Intel would be treated and considered as a really attractive value stock. The company has significant free cash flows, stability, insider buying, and a cheap valuation. A lot of these reasons add up to buying this stock given how much potential Intel has, and it’s understandable why many investors are bullish on this particular stock.
Intel’s valuation is near its historic lows and currently trades around 10 times earnings. Intel has five different operating segments, of which two drive most of their business being Client Computing (Personal computers) and Data Centers (Servers) which attain 90% of their revenues. Their other segments like Internet of Things and Mobility for autonomous vehicles are growing much faster as well.
Intel’s Client Computing segment comes across as a low growth/ low future potential market. This is because PC volumes have gone down as a result of replacement cycles in recent years. However, Intel’s data center business seems like it’s a steady grower tapping into a huge market with $200 billion. However, there are a few red flags here considering their competitors like NVIDIA and AMD’s rapid growth rates that are way ahead of Intel’s. Looking at the bright side, INTEL’s rivals rely on other companies for the physical manufacturing of semiconductors, while Intel designs many of their chips. This is one of the many reasons why the company might be perceived as a strategic asset for the U.S. and in Europe.
Intel is losing shares to faster growing semi-conductor players and the company is only expecting a little growth of 1% year-over-year growth in the short term. But looking at the long-term, INTC’s new management team expects to earn more than $74 billion revenue in 2022 and 10-12% annualized growth over the next 4 to 5 years. The team has introduced a new business model- the IDM 2.0 strategy. If the company can execute and deliver on the annualized target and its stocks reset to 15x earnings, we can expect this company to accumulate huge profits.
According to their recent fourth-quarter reports, Intel’s revenue was $20 billion, exceeding October expectations by $2.6 billion and down 1 percent year-over-year. The full-year revenue set an all-time Intel record of $77.9 billion, up 8% annually.
So the real question remains whether you should invest in Intel. Success is not guaranteed in this difficult area, but Intel looks promising in the long term because of the many reasons mentioned above. However, if you see how well the competitors are doing compared to Intel and see a better future with them, Intel is not the stock for you.