It seems like everyone and their uncle hates Intel (NASDAQ:INTC) Today. This is a sign of how volatile the market can be, but I encourage you to look at the bigger picture and make your own decisions. When the dust settles after a while, I expect the market to value Intel again, and in the long term, I'm bullish on INTC stock.
Intel is a chipmaker that actually makes its own microchips, unlike some of the company's competitors. Having a foundry company is undoubtedly risky, but it's what sets Intel apart.
Today's plunge in INTC shares is a prime example of how investor sentiment can change in an instant. In just one year, Intel has gone from doghouse to darling and back again. However, don't be frustrated by the wild swings in market sentiment because irrational behavior leads to volatility and volatility leads to opportunity.
The good news that no one talks about
INTC stock is down 12% today despite several positive news reports. In fact, the market is so focused on Intel's quarterly report and future guidance that it completely misses some important developments at Intel.
First of all, Intel just celebrated the opening of the company's factory in Rio Rancho, New Mexico. According to Keyvan Esfarjani, Intel's executive vice president and chief global operations officer, this represents the “inauguration of Intel's first high-volume semiconductor operation and the only U.S. factory producing the world's most advanced packaging solutions at scale.”
Additionally, Intel announced a collaboration with Taiwan-based United Microelectronics Corporation (NYSE:UMC) to develop a “12-nanometer semiconductor process platform for high-growth markets such as mobile communications, communications infrastructure and networks.” What is interesting is that Intel is working with a Taiwanese foundry company like United Microelectronics Corporation.
With this Taiwan-based partnership, could Intel and UMC be able to steal significant market share from Taiwan Semiconductor?NYSE:TSM)? This is a question worth thinking about, but hardly anyone thinks about it today.
The story goes on
The market cannot tolerate cautious guidance
To put it bluntly, the market has become so spoiled that it no longer tolerates anything except a full-on beat-and-raise. Sometimes there is a beat-and-raise, but the earnings increase and/or guidance increase is not high enough to impress investors. It's a strange phenomenon – but here too, irrationality leads to opportunity.
With its fourth quarter fiscal 2023 results, Intel has definitely hit the “beat” part of the beat-and-raise formula. Pat Gelsinger, Intel's CEO, had every reason to boast: “We delivered strong results in the fourth quarter and exceeded expectations for the fourth quarter in a row, with revenue at the high end of our guidance.”
Here's the overview. Intel's quarterly revenue rose 10% year over year to $15.4 billion, beating analysts' consensus expectations by $230 million. Additionally, Wall Street called for Intel to report fourth-quarter 2023 earnings of $0.45 per share, but the company actually earned $0.54 per share.
With INTC doubling from $24 to $50, one might expect Intel's stellar quarterly results to drive its stock price higher. Still, Intel didn't deliver the “raise” part of the beat-and-raise combination that people expect these days.
Specifically, Intel gave a sales forecast for the current quarter of $12.2 billion to $13.2 billion, while analysts' consensus forecast was for sales of $14.2 billion. In addition, Wall Street forecast adjusted earnings of $0.32 per share for the first quarter of 2024, while Intel management only expected $0.13 per share.
With this in mind, some analysts have become cautious about INTC stock. Two examples include Bernstein's Stacy Rasgon and Stifel Nicolaus' Ruben Roy, who recently published Hold/Neutral ratings on Intel shares. Additionally, Rasgon's price target of $42 and Roy's price target of $45 are not particularly optimistic.
Think about it – Intel stock would have to go virtually nowhere in the next 12 months to hit these price targets. Still, the company's results show that Intel is capable of beating Wall Street's financial estimates. Since expectations for the current quarter are now quite low, you shouldn't be too surprised if we see earnings rise again – but I can't guarantee that earnings will be better, which is what everyone seems to be demanding now.
Is Intel Stock a Buy According to Analysts?
On TipRanks, INTC is rated a “Hold” based on seven Buy, 24 Hold, and four Sell ratings assigned by analysts over the past three months. The average price target for Intel stock is $46.38, implying an upside potential of 6.5%.
Conclusion: Should You Consider Intel Stock?
Intel has set the bar low for the current quarter. Investors reacted negatively to this, but this creates opportunities. All of this could just be a harbinger of further earnings growth and a more optimistic forecast in a few months.
It's difficult to imagine a good outcome when market sentiment towards Intel is so negative. However, keep in mind that investors were favoring Intel just a few days ago. I predict they will appreciate Intel again, so I think it's smart to consider INTC stock while it's trading at a discounted price.
Disclosure