Source: PaxForex Premium Analytics Portal, Fundamental Insight
In recent years, Intel has shown no signs of being on its way to a $1 trillion market capitalization. Idle revenues year after year and a loss of technical superiority have left this tech titan far behind PC-era peers such as Microsoft, Nvidia, and even Advanced Micro Devices.
CEO Pat Gelsinger has introduced changes that could solve technical problems and foster new lines of business. However, Intel must show that these changes can bring the company back to growth before it can consider a future in which its market value exceeds $1 trillion.
Interestingly, Intel's market value of $1 trillion within nine years is not as far from reality as one might assume. Its current market value of $220 billion means that it would need to grow its stock price by about 18 percent a year to reach that milestone by 2030.
What's more, Intel is currently selling at 12 times earnings. As per CSIMarket, the semiconductor industry's current P/E ratio is over 20. This means that if this ratio is matched, the company has a market value of about $370 billion. However, this ratio lags behind the P/E ratio of key peers. If Intel met AMD's ratio of 38, that by itself would increase the company's market value to about $700 billion. However, except for a brief period after the financial crisis, Intel has not been able to consistently maintain a P/E ratio above 35 since the early 2000s.
Revenue stagnation has probably contributed to this low ratio. Indeed, in the first six months of 2021, Intel was still making five times as much revenue as AMD. During the same period in 2020, however, Intel generated 10 times as much revenue as its competitor. In addition, except for a brief spike in sales during the pandemic, the company has not been able to achieve significant revenue growth for many years.
In addition, the company has been struggling since its development pace slowed in the early 2010s. It has allowed longtime rival AMD to seize technical leadership under CEO Lisa Su.
Intel has recently made technical advances and now produces more 10-nanometer chips than 14-nanometer ones. However, Intel has said it won't release its own 7-nanometer Meteor Lake chip until 2023, which is a major setback given that AMD has been selling 7-nanometer processors since 2019.
Despite such difficulties, $1 trillion can still be achieved if Gelsinger can successfully implement his change. At the Intel Accelerated event on July 26, Gelsinger laid out a plan that could create problems for Intel's peers. He said his goal is to catch up with Taiwan Semiconductor Manufacturing and Samsung in terms of technology by 2024 and regain technical leadership by 2025.
Moreover, TSMC's success is one of the reasons why Taiwan controls two-thirds of global chip production, according to TrendForce. This fact alarmed many politicians in Washington, and the U.S. Senate subsequently passed a bill that included $39 billion in subsidies for new plants, funding for which Gelsinger openly sought. In a world of chip shortages and limited capacity, such a move could potentially increase Intel's market share.
Gelsinger has also worked to revive Intel's foundries independently of subsidies, investing $20 billion in an Arizona facility and $3.5 billion in a New Mexico facility. This investment also means that Intel will build chips for other customers, a business similar to TSMC's, called Intel Foundry Services. Intel Foundry Services has also announced that it has attracted Amazon's AWS as its first customer.
In addition, Intel may have made a move that could stop its more technologically advanced peers in their tracks. Chinese media outlet UDN announced that Intel has bought TSMC's remaining 3-nanometer chip manufacturing capacity. Although Intel will focus this capacity on GPUs and server chips rather than processors for the consumer market, this could prevent AMD and Apple from increasing capacity since neither company currently has its own factories.
Intel's loss of technical leadership and low revenue growth has resulted in the company having a low multiplier and a market value well below $1 trillion. Nevertheless, improved foundry capacity, an initiative to technologically catch up with competitors, and meaningful control of 3-nanometer chip production could bode well for Intel in the next few years. Such competitive moves do not guarantee the necessary annual share price growth of more than 18%. Nevertheless, if these ventures help Intel increase its revenues and consequently improve its P/E ratio, a market price of $1 trillion by 2030 is an achievable goal for the company.
As long as the price is above 51.70, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 53.73
- Take profit 1: 56.50
- Take Profit 2: 57.70
Alternative scenario:
If the level of 51.70 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 51.70
- Take Profit 1: 49.60
- Take Profit 2: 48.50
