Noted investor Cathie Wood, the founder and CEO of investment management firm ARK Invest, is known for investing in companies capable of disruptive innovation. It's not surprising, therefore, that she's been loading up on shares of Advanced Micro Devices (NASDAQ: AMD) in 2023.
Chip giant Intel (NASDAQ: INTC) is taking a big risk with its Meteor Lake CPUs, which are set to become available in December. Almost everything is changing all at once. Unlike its current-generation Raptor Lake chips, Meteor Lake will be the first PC CPU from Intel to be compris
When it comes to artificial intelligence (AI) and semiconductors, one name seems to find itself at the top of the leaderboard: Nvidia. But for investors looking to build a diversified portfolio, it would behoove them to look beyond the latest company to reach the trillion-dollar
Shares of Arm Holdings (NASDAQ: ARM) have given up most of their IPO gains as investors cool on the company's long-term prospects. While Arm-based chips are dominant in the smartphone, consumer electronics, and embedded markets, Arm's growth will need to be driven by markets wher
Intel Corporation (
NASDAQ:INTC
), one of the leading chipmakers in the world, has made steady progress with its turnaround strategy since the appointment of Pat Gelsinger as CEO in February 2021. However, the company may never be the same way it once was as it grapples with persistent production challenges and the increasing threat of competitors.
Although Intel is still the leading chipmaker for central processing units used in personal computers, the company has lost its appeal in many fast-growing sectors, including cloud computing and AI. Therefore, I am neutral on the prospects for Intel, and I believe there is no margin of safety to invest in the company today.
Let's talk about some of the positives about Intel before getting into the negatives.
Turnaround Strategy is Gaining Traction
Intel’s turnaround strategy focuses on several important business aspects. These include reducing costs to improve operating efficiency, reorganizing the business to separate the Foundry business from the Semiconductor Design business, and establishing a smart capital strategy to allocate funds efficiently and effectively to create shareholder wealth.
Intel has made progress on all these fronts in the last couple of years, although
Intel's stock price has halved from around $68 to $34 since Pat Gelsinger was appointed CEO.
Intel started losing market share to competitors such as Advanced Micro Devices (
NASDAQ:AMD
) a few years ago due to production delays of new processors, including the highly anticipated 10nm processor. The company, however, has made steady progress in the recent past by formulating a strategy to regain manufacturing leadership with a new product roadmap consisting of Intel 7, Intel 4, Intel 20A, and Intel 18A process nodes.
According to the company, Intel 18A, which is expected to be launched before the end of 2024, will help the company once again compete with Taiwan Semiconductor Manufacturing Company (
NYSE:TSM
).
A couple of weeks ago, CEO Pat Gelsinger revealed that a future foundry customer had placed a large order for 18A process nodes, giving reason to believe the company is once again gaining the trust of important customers. Over the past couple of years, the company prudently allocated capital to expand its foundry capacity to avoid production delays, and these investments are likely to pay off in the coming years if Intel secures a few big foundry customers with its 18A technology.
Intel has made progress on the cost-cutting front as well. The company has an ambitious plan to reduce costs by as much as $10 billion by 2025. To achieve this objective, Intel has so far reduced its headcount and exited several non-core businesses, including Barefoot Networks.
The biggest move that will help Intel’s cost-cutting measures is the reorganization of its manufacturing business to treat it as a stand-alone unit starting from the first quarter of 2024. Since the manufacturing business will interact with other business units as a standalone foundry, the company will be able to save at least $1 billion from the reduction in expedited wafers alone.
The early positive signs seen from the foundry business and on the cost-saving front are likely to boost investor confidence in Intel in 2024 as the company gains more traction on these fronts.
Intel is at the Right End of Policy Decisions
More often than not, investors have to deal with companies being penalized by policymakers. Intel, however, has found itself at the right end of policy decisions, with the company expected to play a major role in the Biden Administration’s efforts to bring supply chains back home.
Through the CHIPS and Science Act, which aims to distribute $52.7 billion among chipmakers to move their supply-chain operations back into the U.S., Intel will receive anywhere between $2.5 billion and $7.5 billion to build its Arizona and Ohio fab projects.
Although government funding will come with certain requirements, being on the right side of policymakers is always an encouraging sign. With the Biden Administration continuing to focus on creating jobs and surpassing China’s superior chip manufacturing technology, Intel is likely to benefit from favorable policy decisions in the foreseeable future.
The Caveat: Poor Financial Performance
Although Intel is moving in the right direction, the company is not out of the woods yet, which is evident from its lackluster
financial performance in recent quarters. Since the first quarter of 2021, which coincides with the appointment of Pat Gelsinger as CEO, Intel has reported year-over-year revenue declines in each quarter except for the third and fourth quarters of 2021. More recently, revenue losses have extended to double digits, highlighting the rough patch Intel has found itself in.
From a technological perspective, it is too early to determine whether Intel will be able to regain some lost ground in the coming years. Because of this, investors will have to seek a wide margin of safety to invest in the company.
Is Intel Stock a Buy, According to Wall Street Analysts?
Based on the ratings of 32 Wall Street analysts, Intel has a Hold consensus rating, and the
average Intel stock price target is $36.23, implying upside potential of just 6% from the current market price.
Intel, at its
innovation day event held on September 20, showcased a product roadmap that aims to capture the opportunities available in the AI spectrum. Wall Street analysts, however, did not meaningfully adjust their price targets following this event.
Morgan Stanley analyst Joseph Moore maintained his price target at $35, citing that the innovation event lacked major surprises.
Wells Fargo analyst Aaron Rakers, who has a price target of $40 for Intel, concluded that the company’s product roadmap is on track to meet expectations.
The Takeaway: Intel Looks Fairly Valued
Intel is making progress with its turnaround strategy, but the company seems fairly valued today when considering analysts' price targets, leaving investors no margin of safety. A lot can still go wrong for Intel, which makes investing in Intel a risky bet today at a forward price-to-earnings multiple of more than 55. Patiently waiting for a better opportunity to invest in the chip giant seems like the rational choice today.
Disclosure
Oracle Corp agreed to prepay $104.1 million for processor chips made by startup Ampere Computing, according to Oracle's proxy statement filed on Friday.
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For the past 30 years, investors haven't lacked for next-big-thing trends to latch onto. In 2023, absolutely nothing has captivated investors' attention more than artificial intelligence (AI).
After a stellar rally in the first eight months of 2023, Nvidia (
NASDAQ:NVDA
) stock witnessed a pullback. NVDA stock has dropped nearly 17% month-to-date. Plus, shares of Advanced Micro Devices (
NASDAQ:AMD
), Broadcom (
NASDAQ:AVGO
), and other chip makers also cooled a bit, raising concerns that the
AI (Artificial Intelligence) boom could be simmering down. However, analysts’ outlook remains positive, and their price targets suggest significant upside potential for NVDA stock.
With this backdrop, let’s understand what’s in store for Nvidia shareholders in the future.
Nvidia Will Keep Riding the AI Wave
Nvidia has been one of the top beneficiaries of AI advancements. For instance, the company gained from the tremendous demand for its accelerated computing and AI platforms, which significantly boosted its Data Center segment’s revenue and led to a rally in its share price.
In the future, Nvidia is poised to gain from the higher demand for its HGX platform (also known as the engine for generative AI and large language models) from cloud service providers and consumer Internet companies. Moreover, Nvidia continues to expand its enterprise offering, supporting its leadership position in the AI space.
Echoing similar sentiments,
Goldman Sachs analyst Toshiya Hari reiterated a Buy on NVDA stock on September 6. The analyst expects Nvidia to gain from solid demand for generative AI and improve its supply chain.
Besides for the momentum in the Data Center segment, Nvidia will also benefit from the acceleration in the Gaming segment, led by a recovery in demand and significant upgrade opportunities in the coming quarters. As Nvidia is poised to deliver strong growth, let’s look at what the Street recommends for its shares.
Is Nvidia Stock Expected to Rise?
Analysts’ average 12-month price target of $636.32 implies a 55.14% upside potential in
Nvidia stock from current levels. Moreover, with 40 Buys and one Hold recommendation, Nvidia stock sports a Strong Buy consensus rating.
Bottom Line
The acceleration in AI adoption and deployment, strong demand for its AI platform, and partnerships with leading technology service providers could continue to drive Nvidia’s business. Further, analysts’ average price target suggests significant upside potential from current levels.
Disclosure
In today's video, I discuss the complex relationship between Intel (NASDAQ: INTC) and Taiwan Semiconductor Manufacturing (NYSE: TSM). Check out the short video to learn more, consider subscribing, and click the special offer link below.
In today's video, I discuss recent updates of Super Micro Computer (NASDAQ: SMCI) and thoughts on its current valuation. Check out the short video to learn more, consider subscribing, and click the special offer link below.
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British chip designer Arm Holdings (NASDAQ: ARM) went public again on Sept. 14, 2023, seven years after it was acquired by the Japanese conglomerate SoftBank (OTC: SFTB.Y). Arm priced its IPO at $51, and its shares started trading at $56.10 and closed at $63.59 on the first day.
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