It seems as if there’s an army of commentators on social media calling Intel (INTC) stock a value trap. That’s really just their way of saying that the share price is down and is likely to keep falling. Maybe it will, but contrarian investors should consider the other side of the argument. I am bullish on INTC stock because so much bad news has already been priced in and Intel is still moving forward with its chip-foundry plans.
Despite the crushingly low sentiment surrounding Intel, it is still a giant chipmaker that is set to receive financial support from the U.S. government. The CHIPS and Science Act is likely to benefit Intel for years to come, irrespective of who is in the White House next year.
Besides, in a few years, unless the company’s plans change drastically, Intel will be one of the only two global-scale chip-foundry businesses. The other one will be Taiwan Semiconductor (TSM). Between Taiwan Semiconductor and Intel, there will effectively be a duopoly in the chip-foundry industry. While that’s a long-term consideration, there are short-term problems that are making some stock traders nervous.
Intel Is Facing Numerous Issues
Even as I encourage people to take a look at Intel stock, I won’t pretend that the company is problem-free. Indeed, it feels like everything bad that could possibly happen to Intel is actually happening at the same time. To develop my bullish view on Intel, let’s first acknowledge the company’s issues and then later address them.
The most obvious place to begin is Intel’s second-quarter 2024 financial results. Revenue of $12.8 billion fell short of the analysts’ consensus estimate of $12.9 billion. That’s not a very wide miss, but it’s also not a great start and the data gets worse from there. Intel reported Q2 2024 adjusted earnings per share of $0.02, which was far below the $0.13 earned in the year-earlier quarter and Wall Street’s consensus forecast of $0.10.
Furthermore, Intel’s guidance called for a third-quarter 2024 revenue of $12.5 billion to $13.5 billion. The midpoint of this outlook range of $13 billion fell short of analysts’ prediction of $14.4 billion.
On top of all that, Intel announced that it will suspend dividend payments, starting in this year’s fourth quarter. Plus, Lip-Bu Tan, a director at Intel, abruptly stepped down from the company’s board.
Also, Japanese investment company Softbank (SFTBY) halted its plans to collaborate with Intel to create an artificial intelligence (AI) chip. Moreover (I promise this will be the last one), there’s been talk that Intel’s plans to construct two chip-fabrication factories in Germany might not move forward as planned.
Seeing the Bright Side of Intel’s Problems
Believe it or not, you don’t have to join the vast majority of commentators and abandon Intel as a lost cause. Actually, with so many people seeing a huge and important company like Intel as “uninvestable,” I’m looking at the bright side of Intel’s problems. To further support my bullish view on Intel, let’s consider how the company’s apparent issues actually have a bright side.
For one thing, everything I mentioned about Intel is known and already priced into the company’s shares. It’s rare to see Intel stock near $20. This could probably happen only during an economic recession or when Intel is having problems.
In other words, you won’t get a deep share price discount unless there are well-known problems. Intel will suspend its dividend, yes, but the market already punished Intel stock for this. Also, Intel CEO Pat Gelsinger emphasized that the company’s “painful and hard” decisions were necessary and are part of Intel’s “ambitious plan” for the future.
The bright side of the dividend suspension is that Intel will have more capital to build its chip fabrication factories. Intel also plans to implement a “more than 15% headcount reduction,” and again, the positive side of this is that Intel can dedicate more resources toward chip fabrication facilities.
Regarding Intel’s subpar second-quarter results and not-very-optimistic Q3 guidance, the company set a low bar and that’s not necessarily a problem. Low bars are easier to clear and could be a setup for a positive earnings surprise and relief rally.
Furthermore, Gelsinger braced investors for difficult third and fourth quarters, warning, “Second-half trends are more challenging than we previously expected.” Truly, the market has abandoned Intel and prematurely declared the company dead and buried. This is what a bottoming process often looks like. However, very few people will buy what so many other traders are panic-selling.
Is Intel Stock a Buy, According to Analysts?
On TipRanks, INTC comes in as a Hold based on one Buy, 26 Holds, and five Sell ratings assigned by analysts in the past three months. The average Intel stock price target of $27.32 implies 33% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell INTC stock, the most profitable analyst covering the stock (over a one-year timeframe) is Toshiya Hari of Goldman Sachs (GS), with an average return of about 12% per rating and a 68% success rate.
Conclusion: Should You Consider Intel Stock?
Intel’s CEO admitted that the company’s “Q2 financial performance was disappointing.” However, with deep disappointment comes unusually low investor sentiment. That’s a condition you’re more likely to see at the bottom, rather than at the top of a stock price cycle.
Meanwhile, Intel is taking measures to shore up its capital with an eye toward building chip fabrication factories. Eventually, Intel will be only one of the two gigantic companies manufacturing chips from scratch in-house, as opposed to outsourcing the manufacturing process. Consequently, as a dyed-in-the-wool contrarian who likes to look for the bright side when other traders are ultra-pessimistic, I would consider purchasing INTC stock now.
