Intel (NASDAQ :), the world's largest chip maker, has made a remarkable turnaround this year. As investors rushed to buy stocks they believed were of great value during the economic turnaround, Intel became one of the top five winners in the market.
The chip maker's impressive performance comes after a bleak 2020, when its stocks fell about 20% and failed to participate in a vigorous rally that pushed the values ??of many chip stocks to the roof. It was a time when the California-based company lost its appeal as smaller competitors gained ground and the factories failed to bring the latest and fastest chips to market.
These ongoing setbacks, seen by some as a sign that the company's 50-year-old strategy of designing and manufacturing its own semiconductors is no longer working.
Its competitors, including Advanced Micro Devices (NASDAQ 🙂 and NVIDIA (NASDAQ :), design chips built by outsiders led by Taiwan Semiconductor Manufacturing (NYSE :).
So, what has changed this year that prompts investors to bet on this struggling giant?
Before discussing Intel's own growth prospects, it is important to note that the global rotation to value and out of growth stocks plays a large role here.
Investors are buying stocks such as Intel, Exxon Mobil (NYSE 🙂 and Walgreens Boots Alliance (NASDAQ 🙂 as the rise in bond yields is a signal that the US economy is gaining momentum, making cyclical stocks cheaper as they are seen as more exposed to the economic recovery and therefore more attractive.
Intel stock closed at $ 63.72 on Thursday, down about 3% for the day.
Intel Weekly Chart.
Uneven Performance
As for Intel & # 39; s earnings performance in, it is quite clear that the company is struggling to bring the latest and fastest chips on the market to the market . While sales rose 8% in the past fiscal year, they were up just 1.6% in 2019. Sales are expected to decline 10% this fiscal year.
Despite outside pressure to outsource chip manufacturing, Intel & # 39; s new CEO Pat Gelsinger said in January that the company plans to stick with the integrated device manufacturer's model and most of its chips. the company will continue to build internally.
"We are working to close any gaps with outside foundries and stay ahead," Gelsinger said in the latest earnings call.
"And it is clear that we are not only interested in closing the gaps. We are interested in resuming that position as the undisputed leader in process technology."
Some analysts see a logic in this approach and have become optimistic about Intel's growth prospects this year. Needham analyst Quinn Bolton is one of them. This is what he said in a recent note:
“With new CEO Pat Gelsinger on board, we believe Intel will be able to identify weaknesses in its processor roadmap and restore its processor performance leadership. We believe Intel will outsource some of the advanced manufacturing to TSMC, reducing capital intensity, improving free cash flow and improving shareholder returns. "
JP Morgan analyst Harlan Sur, who repeated a buy assessment on Intel in January with a price target of $ 70 per share, believes Gelsinger's track record with VMware (NYSE :), and his instrumental role as Intel & # 39; s Chief Technology Officer provides the right background to lead the company through what is arguably one of the most challenging periods of the company's existence.
Bottom Line
For long-term investors looking to take advantage of the weakness of Intel stocks, the best time to make that trade is behind us. Intel stock has gained more than 30% this year on rotary trading, analysts' optimistic view of the management change and strong demand for high-margin products, including the most advanced data center processors. In our opinion, that big rebound is behind us and investors should wait for the clear sign of a turnaround.
