There was a time… when I wasn’t an Advanced Micro Devices (AMD) man. There was a time when I wasn’t a Nvidia (NVDA) guy. There was a time when I didn’t hang on every utterance made by those firm’s respective CEOs, Lisa Su and Jensen Huang.
There was a time when it mattered when Intel (INTC) , still the world’s largest manufacturer of computer processors, was also a leader in providing the brains for cutting edge technology. There was a time when the CEO of Intel, going back over several names, was a bigger deal in our world than the two leaders mentioned above.
Intel CEO Pat Gelsinger, who spent 30 years at the firm earlier in his career, returned to his old home as CEO in 2021 after serving in that same capacity for VMWare (VMW) for nine years. This time was different. Instead of running the industry champ that he had left, he was now seen as someone returning to his “alma mater” to try to turn it around. Much like football coach Jim Harbaugh who left the NFL to “rescue” his alma mater, the University of Michigan’s football program. Harbaugh, for that matter, continues to choose his old school over NFL interest nearly every year.
Intel Runs
On Wednesday, which was also Intel’s Investor Day, the stock ran 7.61% to close at $31.52. This was the highest closing price for this since last September. The stock is also now up 26.43% month to date with the month ending with tomorrow’s (Friday’s) closing bell. Should INTC hold this level or something close to it, the gains made in March 2023 would be the best for one month since it’s 33% gain in November 2001 as markets recovered from the terrorist attacks that September.
The strong day was helped along by the simultaneous run for memory chip producer Micron Technologies (MU) as that firm posted some awful quarterly numbers but gave some indication that the worst had passed for some key markets, including the data center.
That leads us to what came out of Intel’s Investor Day. Apparently, after having repeatedly disappointing investors for years and trying to initiate or reinitiate a foundry business that might compete with Taiwan Semiconductor (TSM) as legislators prioritize bringing semiconductor supply chains home or at least closer to home.
At the investor day, Intel demonstrated that the firm is upgrading its abilities on the technology side, while accelerating its timeline for coming new releases. Intel revealed that its 48 core fourth generation Xeon chip, when coupled with an AMX AI accelerator engine, is able to achieve “a performance of 4x” when compared to a 48 core fourth generation EPYC processor made by rival AMD, on specific AI-related imaging and language tasking. The Xeon has already caught on, and is currently in use by over 50 different OEMs (Original Equipment Manufacturers).
There’s more. Intel’s fifth generation Xeon, which is also known as “Emerald Rapids” will be delivered in time for this year’s holiday season, as the firm’s low-powered offering, known as “Granite Rapids”, is expected to deliver during the first half of 2024. In addition, there is a next-version low-powered chip on the way as well. The firm expects “Clearwater Forest” to reach customers at some point in 2025.
Wall Street Responds
Investors flocked into Intel on Wednesday. Wall Street, however, was clearly unimpressed. I have found 10 sell-side analysts rated at four stars or better who have also opined on INTC since yesterday’s event. After allowing for changes, readers will probably be surprised that not a single analyst across these 10 rated the stock at a “buy” or something buy-equivalent.
Among the 10, there were seven “hold” or hold-equivalent ratings and three “sell’ or sell-equivalent ratings. There was one “hold” that did not set a target price, so we are working with nine targets.
The average target price across these nine analysts is $27.11 with a high of $32 (twice… Ross Seymore of Deutsche Bank and Tristan Gerra of Robert W. Baird) and a low of $17 (Hans Mosesmann of Rosenblatt Securities). What surprised me here, is (I follow a number of these analysts closely) that Hans Mosesmann on the whole is one of the more bullish analysts when it comes to tech that I follow.
Once omitting one of those highs and the low as potential outliers, the average target across the other seven rises slightly to $27.85. Remember, the stock closed on Wednesday at $31.52. Going into more detail, the average target across six “holds” was $29, while the average target across the three “sells” was $23.33.
Earnings
Intel is expected to report its first quarter results the last week of April. Wall Street is looking for an adjusted EPS of a loss of $0.15 within a range of $-0.22 to $-0.11 on revenue of $11.1B, within a range of $10.9B to $11.6B. The year ago comps were for revenue of $18.35, producing an adjusted EPS of $0.87, so this would be sales “growth” of about -40%. Unadjusted, Wall Street sees GAAP EPS of a loss of $0.65.
Of 30 analysts of all ratings that follow Intel, all 30 have revised their Q1 EPS expectations for this firm lower over the past 90 days. Other than that, they’re doing great.
My Thoughts
INTC is trading at 60 times forward earnings at this point. NVDA trades at 59 times. Many investors think that NVDA is overvalued, and that stock might be, but of these two, which one do you think is more deserving of a forward looking valuation that expresses above trend growth? AMD trades 31 times and AMD has eaten INTC’s lunch now for years.
Intel posted free cash flow of $-9.617B for FY 2022. That compares to $3.808B at Nvidia and $3.115B at AMD. Neither of those firms thought they had a particularly good year either. Intel ended the year with a current ratio of 1.57, and a quick ratio of 1.16. Neither of those is bad, but the firm will have to use its balance sheet to plug the holes in its cash flow.
In comparison, NVDA ended last year with a current ratio of 3.52 and a quick ratio of 2.73, while AMD ended the year, with a current ratio of 2.36 and a quick ratio of 1.77. Clearly, from a fundamental perspective, both NVDA and INTC are far superior (my opinion) to INTC. It’s not even close. Yes, since you asked, I am long both NVDA and AMD, so there is bias here, though I do try to eliminate its impact on my thinking as much as possible.
Readers will see that since last September, Intel has based after a long-period of pressure and consolidated. On Wednesday, the stock broke out above that resistance level that had been tested in both November and early February. The stock also took back its 200 day SMA (simple moving average), as its Relative Strength approaches the 70 level and its daily MACD (Moving Average Convergence Divergence) has been about as bullish looking as MACD’s get.
In other words, as weak as Intel is fundamentally, from a technical perspective the stock is strong. Now, I would have a tough time not considering Intel speculative because I consider myself both a fundamentals and technical analyst as well as an economist.
The economy remains a question mark. Technically however, this stock is in a good place. If the stock can hold that 200 day line, then portfolio managers will be forced to increase exposure. This could, if you are an INTC bull (which I am not), set the stock on course for the $39 level where it will run into a 38.2% Fibonacci retracement of that long selloff that we mentioned above.
If this is one’s game, I would be sure to bring my panic point for this stock up to just below the 50 day SMA (currently $28). This way, nobody gets their faces ripped off.