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Intel's Turnaround Opportunity - Value Stock

May 06, 2021 7:22 PM ETIntel Corporation (INTC) Stock60 Comments
Jay Wu profile picture
Jay Wu


  • Intel’s current valuation, at a price of $59 per share, represents a steep discount and unjustified over-pessimism by investors.
  • Intel’s chip development timeline is back on track with hybrid 10nm Alder Lake in 2H 2021, and 7nm Meteor Lake in 2023.
  • Intel has cut the prices of its chips just as AMD is facing a chip shortage, regaining back some market share.
  • Intel transitions into a Data Centric business with its IOTG and Mobileye business segments expected to drive major future profits.
  • Intel’s refocus on fabs fits well with its long-term goal, spreading out heavy research costs across more production volume and increases its manufacturing know-how.

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This article was written by

Jay Wu profile picture
Spends a lot of my time in understanding industry trends and gleaning insights that inform companies' strategies. I focus my writing on companies innovating on the edge and have potential to ride the next industrial transformation wave. As such, my investing style is growth-oriented. I have previously invested in HubSpot, Sea Limited, Shopify, Disney, Under Armour, Shake Shack and many more. All of them provided returns of at least 100%. I hope my readers will resonate with my investment philosophy and I'm happy to answer any questions you have. As a word of advice, I advise investors conduct their own research and due-diligence before an investment. Afterall, it's your money. I explicitly disclaim any liability that may arise from investment decisions you make based on my articles. Nevertheless, on my part, I will do my best to provide you with the best-informed investment advices. Thank you for reading and I wish you much investment success!

Analyst’s Disclosure: I am/we are long INTC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (60)

Mike Bruzzone profile picture
Intel, AMD and Nvidia q1 product market share check is posted;

ascintor profile picture
Super article!
Very detailed article. Welcome to SA.
AnonymousAlpha profile picture
Couple of mismatching skills CEOs messed up Intel. One thought iPhone has no future, the other a bean counter. And don't forget the bad boardmembers who appointed these CEOs, we the shareholders need to vote them out. Do they make public which boardmember voted for these CEOs? The new CEO finally wants to make custom chips for others using new Intel fabs like TSMC, there was all talk, but no action in the past. He should also have plans to compete with NVIDIA, Qualcomm, ARM, and quantum computing with AI, it should also have a software branch. Intel should become a juggernaut, like Samsung or Apple. If things work, this stock has the potential to double to quadruple.
Worst Intel CEO of all time was the sociopathic clown BK.
Long Intel since 2011; Triple then pullback, bought more. Holding. Gelsinger appears to be top notch CEO who will correct the past mistakes. I won't buy here but in Sept/Oct, when the big sale occurs, I'll be backing up the truck!
Welcome to SA and thank you for the excellent article. To what extent are you confident that Intel is going to use a relevant share of its foundries to manufacture for other chip designers? Looking at Taiwan, it seems the best way to go if you want to compensate the foundries development expenses.
I am an Intel stock holder since 2018 - a disappointed one. To me it seems the company is hell bent on self destruction thru repeated mishaps.

Even though they had cash flow in excess of 20B per year , they went on expensive M&A s and stock buy backs. They are in such a state that the new CEO is asking for taxpayers money to increase his fab capacity.

Since when money fixed the problems of bad governance?

Time to sell the stock (no gain since 2018) and move the money to NVDA.
@Tictock 2018 to 2020 was not the time to invest in value stocks...it was clear that growth was the right move.

2021 and onwards, another story.
Nir Nabar profile picture
Turnarounds seldom turn!
Value stock or Value Trap?

Intel could easily be both right now. In my mind a company like Cisco is the classic value trap. Been dead money since John Chambers left, just sitting there with all their cash waiting for the world to come to them.

Value traps aren't usually created without help from management. And few recover without a renewal of management. If Intel fails at building a foundry service for Western-aligned nations, then yes I believe they will be another Value Trap.
Value stock?

I am an owner in INTC for a decent amount with the cost basis in the low $40s. Am looking at a minimum a decade out.

$50-$60? NO. $30-$40? That is INTC's "value range", imho.

Anything above $30-$40 is just gravy while we get paid a dividend over this next decade to see if they can successfully execute a 'supertanker turnaround in the world's chip canal' (so to speak).

To think otherwise is either to be totally remiss in what INTC's faces (for crying out loud, the coming capex numbers they are talking about should make any investor's knees shake) and/or to be pushing the stock near term for the sheer reason of actively trading it.

"Big opportunity for upside gains..."?

LOL, yeah, sure :-/

Bridges in Florida and all that........

The best of fortune to us all
WHEN the chips ship in quanity,
THEN Intel's time line will be "back on track."
"... chip development timeline is back on track with hybrid 10nm Alder Lake in 2H 2021, and 7nm Meteor Lake in 2023."
I hear good things about Gelsinger, but he can't do it all by himself. One key question is: How much talent is left in the company after the years of lackluster management, and how healthy is the culture?
Intel CPUs are the BMWs of the chip world. AMD CPUs are the Mini Coopers. ARM CPUs are the public buses.
@It's Sausage Time You must be a time traveller from the 90s. Welcome to the future!
wokingfoo profile picture
@Jay Wu Could you elaborate or explain a bit on the x86 vs ARM design debate? This seems to be the essence of INTC's lower valuation, or is it just the delay in 10nm and 7nm that is pushing the stock price down? If the x86 is going away in say 10 years, then AMD will be in trouble as well, but that has not been the case. In the last 2 years, there has been more heavy weights (Apple, Amazon, Google) transitioning to ARM design and making their own chips through TSM. Is it because ARM is much better for mobile, lower power consumption and open source customization?
Jay Wu profile picture
@wokingfoo The x86 vs ARM debate has been ongoing for many years and the war on which is the superior architecture still rages on. Historically, ARM aims for power-efficiency and x86 targets peak performance. These architectural differences between the 2 makes the ARM chip design a better fit for mobile application.

But recently, as you've quoted: Apple, Amazon, Microsoft are developing their own in-house ARM processors for non-mobile applications. Apple's ARM-based M1 chip now runs faster than desktop Intel and AMD's x86-based chips. The world's fastest computing system (Fugaku supercomputer) is based on ARM chips. This brings the competitivity of the x86 architecture into questions, as well as its future market share.

The ARM processors is currently able to run faster than the x86 processor due to debottlenecking and making use of Out-of-Order execution (essentially multitasking). No doubt, the x86 has lagged behind and many articles point to it being eventually replaced by ARM. I can't disagree with this, but I also don't agree fully. The future of x86 chips remains unknown, while the choice of chip architecture might matter less with open-source development.

From a technical perspective, ARM offers better capabilities over x86, and its limitations have been resolved with the availability of larger caches and compiler optimizations over the last few years. If Intel or AMD can broaden the front end of their x86 design, then I think the gap will remain quite narrow, but if they can't, ARM will likely pull ahead. x86 instruction decoding is a nontrivial problem, and one of the major limits on widening x86 cores.

From an ecosystem perspective, the barrier to swapping to ARM is getting smaller with time. There are a lot of reasons for this, ranging from higher amounts of heavily abstracted code being written to improved emulation options allowing for interpretation and recompilation. Currently, there is still a large body of software which runs only on x86 or is best supported on x86.

Currently I see 3 pathways, from the best to the worst for Intel: releasing more improvements to x84, building on the open source RISC-V architecture; migrating over to ARM. The probabilities of which case will happen boils down to technological advancements, business case and game theory. I will provide further updates to this in my future articles!
@Jay Wu great write up. But I think you just wrote an anti-thesis for your own article.
wokingfoo profile picture
@Jay Wu Thank you for your detailed and thoughtful explanation, easily the most detailed in layman's language of x86 vs ARM. I appreciate your reply and article.
brettze profile picture
I dont understand why I keep reading more articles about the obsolescence of x86 chips .. Investors are starting to look at NVIDA and Apple as future sources of chips instead of Intel as well as AMD! I am having a hard time making sense of it.
Money&Money,LLC profile picture
Then stop reading articles
@brettze, it's the Internet and nonsense sells. Facts, hah, everyone has the same facts, so they get boring.
First of all, welcome to SA and thanks for your excellent first contribution.
in my eyes, Intel already is the beaten dog that AMD has been for years and years. But this has happened before. Pentium 3 and Athlon anyone? I have to admit AMD is seeing strong leadership, but Intel has some advantages that soften the blow and make it easier for them to comeback:

- Huge difference in R&D, which helps by the improvement in management. Good management = good Capital and Talent allocation. Gelsinger seems to be both at first glance. More money means mote results if it's spent in a decent way. Intel is hiring like crazy now, finally!

- Supply constraints for AMD, who just can't fulfill demand. Intel has it's own foundries and that will help them stick to more marketshare than if they did not.

- Growing market. If the Pie is growing, a deminishing marketshare will be less of an absolute hit. This is only short term cushion though. If AMD can push through once supply is plenty and Intel hasn't caught up by then, it could be a whole different ballgame.
Jay Wu profile picture
@murkymurk Thank you too for reading!!
@murkymurk you really need to look at the talent retention at Intel to understand if your comparison to a lost era is true. That is the hole in your thesis. A CEO is just one person and we are talking a decade of missteps.
Is the research of Intel to quantum computing not even notabable?
In my opinion they are in a good position in bringing the processes to an higher temperature level, which would make them more stable and easier to handle...
No doubt it is still a far travel to go, but innovation is there!
@SpekulatiusMaximus no z in processors
@Weinegar0304 as non native english speaker, my own language somtimes gives an unwanted signal ;)
I corrected it now.
I opened a small position this week and I am by no means a value investor.

Value Traps scare the heck out of me but in four short months, Pat Gelsinger has place catalysts under Intel that were nowhere to be seen under the last two CEOs. I expect Intel to continue to lose a portion of market share in datacenter, I'm in for the foundry biz.
Intel is a classic value trap. In the next 5 years we will see a complete reversal of roles between AMD and Intel.
@estchava elaborate please?
Jay Wu profile picture
@estchava Yes I have analysed the risks of Intel being a value trap. To raise an example: Hewlett-Packard had a low price-to-earnings multiple of just 5.2 times 2012 forecasted earning, a significant bargain if you look at the surface. However, the company was facing a deteriorating balance sheet caused by a series of bad acquisitions that had to be written off. Investment in R&D was also low.

By contrast, if you look at Intel, its recent acquisitions Habana Labs and Mobileye have added on to Intel's capabilities. Mobileye has been elaborated on the article above; Habana Labs is providing AI accelerators to the San Diego Supercomputer Center. Futhermore, Intel has spent a total of $39.9 billion on R&D over the last 3 years while AMD and Nvidia only spent a combined $12.7 billion.

I acknowledge the fact that Intel is facing extraordinary pressure in the CPU and GPU space from AMD and Nvidia, as well as competition from rivals in other fields. There is no clear winner yet; Intel is still throwing its punches. Yet the market seems to have chosen its winner already and prices Intel to be the knocked-out loser already. That is where I disagree.
@Cobra6 he can’t elaborate hahaha I hate when people just make a statement with nothing to back it up. I’m not saying he’s wrong I’m just saying I would love to hear the reasons.
Capitalism Is Freedom profile picture
Great article!!! Nice job Mr. Wu.
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