Is Intel a Buy Now? No.
Intel is having a rough year so far. They are down over 50% year-to-date, the sharks are circling, and their most recent quarter was an unmitigated catastrophe. They went from being worth more than Nvidia straight-up just a few years ago to now worth one-thirtieth of Nvidia. They are not having a great time.
So, is it time to pull the trigger? Is it time to buy this really bad company and hope they can turn it around? Short answer, no.
Here is the long answer:
Intel is currently trading at a forward p/e of 21.4, this is a measly 6.5% lower than the S&P. If I were looking to make a value play, I would steer towards companies with much, much lower p/e ratios compared to the broader S&P. That said, they do have a negative price-to-book value, which would be encouraging for a value play.
Intel will not be bought out. Qualcomm and other bargain-seekers obviously came out in droves after Intel’s implosion, but I think an acquisition is unlikely. Even after their revenues took a s sizable hit, Intel is still set to make 25% more over the next 12 months than Qualcomm. For Qualcomm to pull this off, they would have to dilute their shares, a bunch of debt, and a really sticky assimilation process. Frankly, this is not going to happen. Qualcomm buying Intel is like Trinidad and Tobago beating Canada at hockey.
Any complete acquisition of Intel is almost certainly impossible, due to regulatory concerns. Intel does both semiconductor designing and chip manufacturing. So, whoever is purchasing them would have to be big enough to have all the necessary cash, but they could not be too big, or the FTC will not allow the sale to happen. Also, the buyer would have to be American. Both the Biden and Trump administrations have placed a massive amount of importance on keeping chips in America, and Intel is one of the few American chip manufacturers. Neither Kamala nor Trump would allow chips to go a non-America company. All of this means that a full acquisition is almost entirely impossible.
More likely, and slightly helpful, is a $5 billion investment by Apollo. These guys specialize in distressed assets, which Intel officially is. This $5 billy investment is a nice-to-have, but in no way does it alleviate any of my concerns about the company.
And here is where we get to the heart of the issue with Intel. I do not see how they reclaim market share. They are too slow of a company, too stupid of a company, and they just announced that they were laying off 20,000 employees. In those 20,000, are almost assuredly, very important people who will go to rivals and do well there. This brain drain is punishing, and I wish Intel would have laid off 4%-6% instead.
Other than that brain-drain, here is why Intel is still a poor place to put your money: While there are very few chip manufacturers in the West, and if China were to go to war with Taiwan, those chip manufacturers would become extremely valuable, Intel is still getting pounded right now. Their fabrication is not even in the same universe as TSMC. They lost $7 billion last year on revenue of $19. They are not even expected to break a profit for THREE YEARS, and that is best-case. TSMC currents pulls a 54% margin on their foundry, Intel pulls -25%.
In design, Intel is also middling. In PC’s AMD is completely breaking them. In data center’s everybody is buying Nvidia’s new AI chips instead, a trend that Intel completely missed on. Intel’s market share is 25% smaller than it was just a few years ago, and I see no reason why that trend would reverse.
In short, there are better places to put your money. I would not be infuriated with you if you bought into Intel as a value play, but there just are better places to put your money: Microsoft, Costco, Ferrari, etc… Intel is too little bang for too much buck.
