Given the powerful demand for semiconductors and the steps that Intel (NASDAQ:INTC) is taking to strengthen its supply chain, the medium-term and long-term outlook of INTC stock appears to be strong.
Under the leadership of its new CEO, the tech company appears to be improving the quality of its manufacturing process. Furthermore, the chipmaker remains well-positioned to get a boost from multiple emerging trends, including the proliferation of artificial intelligence (AI), the Internet of Things and autonomous driving.
Despite these positive drivers, INTC stock has remained rangebound. The stock’s failure to break out of its longtime trading range is largely due to Intel’s failure to shrink its chips as quickly as Wall Street would like. Over the long term, though, I expect Intel to overcome this obstacle and INTC stock to move higher.
Supply Chain Strengthening Under New CEO
There are a number of trends driving high demand for Intel’s chips. These include increased demand for PCs due to the work-from-home revolution, the rapid growth of the Internet of Things phenomenon and the increased use of chips in automobiles. The widespread utilization of AI and new data center technologies is also increasing demand for chips, Intel’s CEO Pat Gelsinger explained on the company’s second-quarter earnings conference call.
The combination of these trends has resulted in a worldwide chip shortage. Like all chipmakers, Intel has had difficulties meeting heightened demand. Unlike most of its competitors, however, including Advanced Micro Devices (NASDAQ:AMD) and Nvidia (NASDAQ:NVDA), Intel makes most of its own chips, leaving it much better positioned to adjust its supply chain to the “new normal.”
Gelsinger said the company intends to spend up to $20 billion to construct two factories in Arizona to make cutting-edge chips, with plans to develop additional plants in the United States and Europe. What’s more, Intel will look to profit from the chip shortage by eventually using its manufacturing capacity to make chips for other firms.
Wall Street has been largely focused on the company’s inability to shrink its chips as quickly as AMD, and Intel’s failure to meet its own scheduled targets. Gelsinger has also implemented measures to combat those issues.
Importantly, Intel is using more parts from outside vendors, as Intel CFO George Davis explained at a recent conference. And the company has generally simplified the chipmaking process, partly by using a technique called EUV and partly by making better use of its existing “ecosystem,” the CFO stated.
Meanwhile, the CEO’s remarks on the chipmaker’s Q2 earnings call suggest that the company is meeting its production targets in an efficient manner. For example, Gelsinger said the company is now manufacturing more 10-nanometer wafers than 14-nanometer wafers, adding that Intel paid 45% less to make its 10-nanometer chips than during the same period a year earlier.
He added that the company’s new Ice Lake chips are “ramping broadly to customers,” while several million units of its newer 10-nanometer Alder Lake chips will ship in the second half of this year. Finally, he reported that the company’s upcoming, 7-nanometer Meteor Lake chip “remains on track for production in 2023.”
AI, the Internet of Things and Autonomous Driving
As I mentioned earlier, AI, the Internet of Things and autonomous vehicles represent big growth opportunities for Intel.
On the AI front, Intel’s head of architecture, Raja Koduri, said, “We are the fastest AI CPU, and our Sapphire Rapids, our new data center architecture, is the fastest for AI workloads.” Given the rapidly increasing importance of AI in so many industries, including data centers, Intel’s edge in AI speed is a big deal.
Intel is clearly benefiting from the expansion of the Internet of Things, as the revenue of its Internet of Things unit soared 47% year over year to $984 million.
The growth of its Mobileye division, which develops self-driving cars and advanced driver-assistance systems (ADAS), was even more impressive. The unit’s sales jumped 124% year over year to $327 million in the second quarter. Mobileye plans to launch autonomous taxis and ride-share vehicles in Munich and Tel Aviv next year. If Intel is able to generate revenue from robo-taxis in the future, that should move the needle for INTC stock.
The Bottom Line on INTC Stock
Given the Street’s lack of enthusiasm for Intel, it’s not a good stock to buy for anyone who wants to make quick profits. But for patient long-term investors, INTC stock is a good name to purchase. The firm appears to be fixing its problems and developing impressive new products. And it looks poised to benefit meaningfully from emerging trends.
And since INTC stock has a 2.6% dividend yield, anyone who buys it now will get paid to wait for the Street to acknowledge Intel’s transformation and positive catalysts.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.