Intel (INTC) stock is arguably one of the cheapest tech stocks out there these days, with a price-to-earnings (P/E) ratio of 12.3.
While the hardware giant we all know and love may seem like a great value play, there are real challenges underneath the hood.
Given the baggage, and the risks that Intel could fall further behind the competition, investors may wish to insist on a wider margin of safety before initiating a position in a company whose pressures could mount.
For now, I am neutral on the name. The stock is cheap, but it could get much cheaper if the company can’t catch up to its rivals soon. (See Analysts’ Top Stocks on TipRanks)
Weak Quarter
With another quarterly miss in the books, INTC stock is back on the retreat. The company revealed some disappointing third-quarter results after Thursday’s close, causing shares to plunge around 9% after hours. Revenues of $18.1 billion came up short of the $18.24 billion consensus estimate.
Undoubtedly, component shortages relating to broader COVID-19 supply chain disruptions impacted the results. This, combined with prominent weakness in the company’s margins, paints a gruesome picture for the year ahead.
While Intel has made significant changes at the executive suite in an effort to get the company back on the right track, the recent quarter just confirms what investors fear most: Intel may be at risk of being left behind by the competition.
Still, it’s too soon for the new CEO to work his magic. The task ahead may be daunting, but it’s still far too soon to count Intel completely out of the race, as it looks to close the gap with its blazing-fast rivals.
Despite all the negatives, there comes a point where every stock, even those with excessive amounts of baggage, can offer a compelling value.
The real question for dip buyers is whether Intel’s new CEO, Patrick Gelsinger, can turn the ship around. With the coming release of the Alder Lake line of chips, Intel stock may be in a spot to alleviate some of the selling pressure, at least over the medium term.
Regardless, playing catch-up in chips is not where any firm wants to find itself, especially a company that’s maintained the lead for so long.
M-Series Chips Deliver Huge Blow to Intel
With Apple (AAPL) flexing its muscles with its latest M1 Pro and Max line of chips, which were truly game-changers on performance versus power scale, it seems as though Intel is highly unlikely to work its way back into the Mac, which requires best-in-breed components.
Even if Intel were to catch up to the M-series chips, it’s unlikely that Apple would want to surrender any margin to Intel. It can be much more profitable to develop one’s chips, especially if they’re chips exclusive to a product within a robust ecosystem.
Although Intel believes it can win back Apple’s business, signs indicate that it could be a lost cause, as Apple’s chips look to lead the charge for the entire industry.
Wall Street’s Take
According to TipRanks’ analyst rating consensus, INTC stock comes in as a Hold. Out of 23 analyst ratings, there are five Buy recommendations, 11 Hold recommendations, and seven Sell recommendations.
The average Intel price target is $54.82. Analyst price targets range from a low of $40 per share to a high of $85 per share.
Bottom Line
Despite the loss of Apple, Intel can still turn a corner if it can bring the fight to its rival AMD (AMD) in the PC market.
It won’t be an easy task, but Intel can limit the damage if it can execute on its aggressive product roadmap, which, in theory, could allow Intel to catch up by 2025.
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Disclosure: Joey Frenette owned shares of Apple at the time of publication.
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