As the semiconductor sector as a whole moves toward its highest levels since the dot-com bubble, Intel Corporation (INTC) seems almost forgotten. And there are some reasons for concern.
Competition is increasing. Advanced Micro Devices, Inc. (AMD) has become a legitimate rival in desktop and laptop computers with its new Ryzen line. With PC sales as a whole relatively flat, AMD’s share gains could lead to revenue pressure for Intel.
Growth elsewhere may be difficult as well. Nvidia Corporation (NVDA) is challenging Intel’s dominance in data center chips. And Intel will face Nvidia, and a host of other hopefuls, in the automotive space after its acquisition of Mobileye NV (MBBYF).
The worst-case scenario for Intel is an outcome similar to that of International Business Machines Corp. (IBM), which is seeing revenue — and profit — decline as it loses out to younger, more nimble rivals. But Intel isn’t IBM yet, nor is it close to becoming it. It’s coming off a second quarter where it posted record sales and raised full-year guidance.
Yet INTC is trading at 12.3 times 2017 EPS guidance, a multiple that suggests its growth is coming to an end. And Mobileye hasn’t yet contributed to its results, with that deal closing last month. Valuation here seems too conservative, and it seems to imply that Intel has peaked. With so much optimism toward the space as a whole, that in turn suggests that Intel — one of the greatest tech companies of all time — simply won’t be able to compete.
That’s too bearish of an outlook. Even if INTC turns out to be “dead money,” or close, a 3% dividend yield will provide solid income. Any additional growth, meanwhile, will only add to the stock’s returns.
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Source: Kiplinger
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