Intel (INTC) has underperformed its chip peers in recent months and years. Down 37.7% year-to-date and 32% over five years, the stock’s valuation is starting to look attractive based on expected growth in the Client Computing Group (CCG) and Data Center and AI Group (DCAI). I’m bullish on Intel, with the company trading at 30.3x non-GAAP forward earnings and a price-to-earnings-growth ratio (PEG) of 0.6x (1.0x or less is generally considered undervalued).
Intel’s Failures
Intel has struggled to keep pace with its rivals in several areas in recent years, and analysts have noted several shortcomings under CEO Pat Gelsinger. The first of these is Microsoft’s (MSFT) decision to switch from Intel in favor of Qualcomm (QCOM) for its new Surface Copilot+ PC devices. This likely highlights Intel’s underperformance in PC processors.
In December, Intel launched its Meteor Lake processors to much fanfare. Despite being the first Intel chipset to feature a Neural Processing Unit (NPU) to support AI and a combined CPU/GPU architecture, its measured artificial intelligence (AI) performance was just 34 TOPS (tera AI operations per second). For reference, Microsoft claimed 40+ TOPS for the NPU alone.
In response to this negative feedback, Intel has continued to announce its Lunar Lake chips early, which have 100+ Platform TOPS and 45+ NPU TOPS. However, some analysts have suggested that the second failing is the inability to match the power efficiency of the Qualcomm X Elite series and the need to use Taiwan Semiconductor Manufacturing (TSM) for production.
Finally, Intel’s foundry business has seen a decline in external revenue. While there’s nothing wrong with focusing on delivering Intel’s own needs from its foundries, it’s perhaps telling that external revenue has declined. Even Intel is using TSMC’s foundries for its 3nm processes.
Intel’s Outlook
Despite these challenges and shortcomings, Intel’s outlook remains strong. The company has seen strength in key segments such as CCG and DCAI, with the former reporting 31% revenue growth in Q1. CCG represents more than half of the company’s revenue, and recent success has been driven by growth in desktop revenue (+31%) and notebook revenue (+37%). CCG is a business unit that supplies consumer and commercial PCs, including desktops, laptops, and related components.
Additionally, Intel has ambitious plans to become the second largest external foundry by 2030, with significant orders already from companies like Microsoft. Microsoft has already placed orders for the 18A process node, which arguably speaks volumes about the direction the company is heading.
Intel has reportedly reserved all of ASML’s (ASML) high-NA EUV machines and will begin shipping them in early 2024, becoming the first customer to do so. This is likely the reason for the higher CapEx in Q1, but it also puts Intel on a good footing to compete technologically, going forward.
It’s also worth noting that many analysts believe Intel is best positioned to weather geopolitical tensions and a potential attack on Taiwan — the island is central to the global chip industry. That’s because Intel’s capabilities still dominate in the U.S. and its allies.
Cheap valuation
Analysts’ earnings forecasts for Intel are very strong. The company is expected to earn $1.08 per share in 2024, but that jumps to $1.92 in 2025, according to 38 analysts who provide earnings forecasts. That figure rises again to $2.50 in 2026, according to 10 analysts, and $3.18 in 2027, according to just two analysts.
At $31.36 per share, the stock currently trades at 29x non-GAAP forward earnings, which looks cheap compared to many of its peers in the chip sector. The caveat, however, is that many of its competitors are more exposed to the AI revolution. Still, Intel is expected to grow earnings rapidly — as noted above — and that gives us a PEG ratio of 0.6x. That’s very tempting.
Is Buying Intel Stock a Bargain, According to Analysts?
On TipRanks, INTC comes in as a Hold based on three Buys, 13 Holds, and one Sell ratings assigned by analysts over the past three months. Intel’s average price target is $39.80, implying 27% upside potential.
View more INTC analyst ratings
The Core of Intel Stock
Intel’s earnings outlook and valuation figures are exceptionally attractive, and analysts’ expected upside reflects this. While the company’s track record isn’t great, I’m buoyed by the earnings outlook and positive developments in the CCG and DCAI segments, which makes me bullish on the stock.
Revelation
