What a difference several quarters can make! Earlier this year, Intel (NASDAQ:INTC) was a virtual outcast on Wall Street, mocked for losing market share to Advanced Micro Devices (NASDAQ:AMD) and NVIDIA (NASDAQ:NVDA). However, Intel is now a darling of the market, and its share price is soaring.
It’s fine for value-focused investors to root for an underdog, but what about a former underdog everybody seems to favor now? Contrarians may bristle at the thought of buying INTC stock now, but there may still be good value for investors.
After all, if Intel can successfully compete with AMD and the almighty NVIDIA in the artificial intelligence (AI) chip wars, the “Magnificent Seven” club might have to make room for an eighth member in 2024.
Intel unveils powerful products
Essential to Intel’s follow-through in the coming year is its new AI-enabled product lines. On that topic, Intel took direct aim at AMD and NVIDIA during its recent AI Everywhere event.
During this event, Intel unveiled its next-generation Core Ultra processors for laptops. As you might expect, Intel’s management emphasized the Core Ultra lineup’s compatibility with AI applications.
“The launch of Intel Core Ultra represents the unmatched scale and speed at which Intel is enabling AI on the PC… Intel is best-positioned to deliver this next generation of computing,” declared Michelle Johnston Holthaus, general manager of the Client Computing Group at Intel.
According to Barron’s, Intel claimed that over “100 software vendors have optimized their applications with AI-related features that take advantage of Core Ultra.” Presumably, the implication is that there’s a robust market for laptops with AI applications and that Core Ultra will be integral to this market’s future growth.
However, Core Ultra isn’t really Intel’s flagship product in the AI-hardware arms race. The more impactful product is the fifth-generation Xeon processor, which the company also introduced at AI Everywhere.
This product is Intel’s answer to NVIDIA’s AI-compatible chips. Unlike Core Ultra, Xeon isn’t specifically dedicated to laptops or personal computers (PCs).
“Designed for AI, our 5th-Gen Intel Xeon processors provide greater performance to customers deploying AI capabilities across cloud, network and edge use cases,” clarified Sandra Rivera, executive vice president of Intel’s Data Center and AI Group.
Xeon won’t put NVIDIA and Advanced Micro Devices out of business, by any means. Still, Intel could actually pose a major threat to NVIDIA’s AI-processor dominance with this new product. Notably, Intel (per Barron’s) claims that the latest Xeon chips “provide a 21% performance boost over their predecessors and 36% more performance per watt.”
Is Intel stock nifty at $50?
It seems like just yesterday that INTC stock traded at $24 and change. This actually occurred in early 2023, back when financial pundits joked about AMD eating Intel’s lunch in the U.S. chipmaker market.
As it turns out, $24 and change was a great price at which to buy Intel stock, which recently blasted above $50. This serves as a stark reminder that yesterday’s laggards can sometimes become today’s leaders.
Of course, Intel isn’t the undisputed leader in the AI chip wars, but the market seems to envision Intel playing catch-up in the coming quarters. Since the market is forward-looking, it may have already priced Intel’s rebound into the shares.
That’s a legitimate concern for value-focused investors. At around 50, Intel’s forward non-GAAP price-to-earnings (P/E) ratio is double the sector’s median forward P/E ratio.
Yet, I’ll dare to declare INTC a bargain, even at its current valuation. Intel CEO Pat Gelsinger stated that his company submitted “over $100 billion” worth of project proposals to the U.S. Department of Commerce to capitalize on the Chips Act. If even a fraction of those projects garner government support, Intel could gain major revenue sources for years.
Speaking of government support, Intel just gained the Israeli government’s approval to build a chipmaking factory there. If all goes according to plan, Intel will shell out $25 billion while also gaining a significant foothold in Israel’s chipmaker market.
Hence, Intel’s comeback story probably has many more chapters. Additionally, INTC stock hasn’t reached its all-time high yet, or even its 2021 high. Thus, as we approach the end of a strange year for technology stocks, contrarians can consider the most contrarian call of all: invest in Intel even if everybody else is doing it.
Disclaimer: All investments involve risk. In no way should this article be taken as investment advice or constitute responsibility for investment gains or losses. The information in this report should not be relied upon for investment decisions. All investors must conduct their own due diligence and consult their own investment advisors in making trading decisions.
