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Intel Has a Lot to Prove in 2022
Stock Analysis & Ideas

Intel Has a Lot to Prove in 2022

Shares of chip behemoth Intel (INTC) have really lost a bit of step to its rivals over the years. With a new top boss at the helm and an ambitious plan to get back to the top of the chip world, Intel is an underdog with a lot to prove over the next year and beyond.

While Intel plans to return to the top in around three years, I think the firm needs to show progress along the way if it’s to win back investors’ confidence in such a competitive landscape.

Undoubtedly, the chip space has always been furiously competitive. Still, Intel faces a tougher environment with many firms, including iPhone-maker Apple (AAPL), opting to design its own chips to bring together the best of hardware and software. There is no time to waste if its new architecture roadmap is to get Intel ahead of the pack.

Currently, Intel stock is stuck in a funk, and investors seem a tad skeptical over the firm’s plans to regain the throne. While Intel does have the right management team to pull it off, it’s tough to gauge the road ahead, even if Intel does hit or exceed its goals. For now, I am neutral on INTC stock.

Intel Faces Intensifying Competition

Rivals, like Apple, are continuing to raise the bar. Apple’s M1 series of SoCs (Systems on a Chip) is a breakthrough technology that may very well be a year or more ahead of the competition on a performance-per-watt basis. The M1 Pro and Max raise the bar on the M1.

In 2022, the M2 can be expected to raise the bar even further. Undoubtedly, Intel’s 12th generation Alder Lake series of CPUs are incredible in their own right, but on a “pound for pound” basis, I’d still give Apple’s M1 line the slight edge.

Not to mention that we may be just months away from Apple’s next major iteration. For now, it looks like Apple may appear to be the pound-for-pound champ. Though this could change at any time.

Can Apple Silicon Raise the Bar Again? 

It could. The real risk to the chip makers is that Apple raises the bar much higher than expected with its 2022 or 2023 chip, which may be included in its much-anticipated mixed-reality headset. Undoubtedly, Apple remains a serious threat that has me questioning the depressed multiple in a name like Intel and other chip-makers.

Not to knock Intel’s management, but it’s up against it, and the chip space may not be the best place to bet heavily on an underdog. Of course, Intel could catch up as it looks to accelerate its efforts. The million-dollar question is if it can keep up its accelerated pace to run past the growing number of players all sprinting for that finish line.

It’s not just Apple that Intel should keep notes on.

Microsoft’s Chip Ambitions Could Weigh on Intel’s PC Dominance

Microsoft (MSFT) wants to get in on the action, too. Arguably, Microsoft may be a more significant threat to Intel, given its potential to pressure Intel on the PC side.

Indeed, Intel’s exit from the Mac is already baked into shares of INTC here, but is Microsoft’s ARM design ambitions baked in?

Although Intel stock did sink lower on news of Microsoft’s chip ambitions back in late 2020, I don’t think Microsoft-induced pressures are fully behind Intel quite yet. If Intel is out-innovated by new entrants in the CPU space, sales and margins could take a one-two hit straight to the chin.

Wall Street’s Take

Turning to Wall Street, INTC stock comes in as a Hold. Out of 25 analyst ratings, there are six Buys, 12 Holds, and seven Sell recommendations.

The average Intel price target is $55.76, implying 0.6% upside potential. Analyst price targets range from a low of $40.00 per share to a high of $80.00 per share.

The Bottom Line on Intel Stock

I wouldn’t go as far as to say Intel is a value trap, but I do find it hard to get behind the stock, given the intensifying competition that could raise the bar over the next three years. The real risk is that the bar is raised by so much that Intel may be unable to pass it to regain its lead by 2025.

It is going to be a tight race in the chip space. If Intel can pull it off, the rewards could be considerable for contrarians getting behind the stock at today’s valuations. Intel may look cheap at 10.8 times trailing earnings, but it doesn’t have much wiggle room if it comes up short versus rivals in a future iteration.

Until Intel can pull the curtain on a real breakthrough that puts its rivals back in their place, I’ll continue sticking to the sidelines when it comes to INTC stock.

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