The Nanalyze Verdict: Intel Stock

Shares of Intel are up over 300% in the past year. That's insane appreciation for a $500 billion company and three times the return of the VANX Semiconductor ETF, an appropriate benchmark. Always use a benchmark when you site returns. Why are Intel shares going through the roof? Should you climb on board the Intel money train before it takes off? Choo choo. Today, we'll tell you everything you need to know about one of the biggest turnaround stories in the semiconductor industry. Intel has the 40th most valuable brand in the world, which means most investors probably have some idea about what they do. They make chips, right? Intel inside. What you may not know is that Intel is not the same company that it was 5 years ago. Back in 2021, they were having the best year ever. And it went downhill from there. I think this quarterly revenue chart does a great job of showing just how depressed the fundamentals have become over the years. On the left you see 2021, their best year ever circled, and on the right you see the last trailing 12 months. There's a big difference there. So fundamentals have depreciated. Now, in the past several quarters, they've shown some green shoots of growth, but even the last quarter was well below their glory days of 2021. Not just revenues, but profitability has dropped significantly at the gross margin and operating margin levels. This is a company that's seen their fundamentals deteriorate now for about half a decade. So it's basically a turnaround story now. We don't invest in turnaround stories because once you lose a leadership position, it becomes very difficult to claw it back. One bird in your hands is worth two birds in the pub or however that old saying goes. So why even cover Intel? Well, because our thousands of paying subscribers have asked us to. They pay the bills. When our customers say jump, we say how high. So, we've already pointed out how there's no fundamental reason for the share price to be appreciating as it has. By all accounts, shares of Intel should be sinking, not soaring. This hasn't gone unnoticed by some who are even calling Intel a meme stock. Probably all starts with this punter on Wall Street Bets who supposedly screenshot millionaire put 700K of his grandma's inheritance into Intel. But it's also been given validation by some pundits who say at its most basic level, Intel is a meme stock. The reason they say that is because intrinsic value doesn't get created this quickly. Hype is what makes stock prices move like this stories. Retail investors drive meme stocks with their extreme irrationality. So, by definition, a meme stock needs the ability for retail investors to influence the share price through their trading activities to put their absolute social mediadriven irrationality on full display. But are retail investors really able to influence a $500 billion company? Seems highly unlikely. And that's not just because of its size or its high trading volume? Here's why. Intel's not a meme stock. Intel just raised $20 billion at $95 a share, which basically provides some price support. These are institutions buying these shares, says the new CEO. The round was oversubscribed five times their initial goal. So there was a lot of institutional demand for these shares. They talk about their underwriters, big names in industry, JP Morgan, Gold Slacks, Morgan Stanley, Croup. These large firms aren't out there trying to solicit retail interest by doing long- form interviews on small YouTube channels. They're talking to the biggest asset owners out there who have decided to back Intel. So why this sudden appreciation in share price rate? >> Well, there's been a lot of talk about an ongoing CPU shortage, but I think CPU bottleneck is probably the more appropriate term. Back in April, we actually sent out an alert to our analyze premium subscribers when Intel jumped 25% in a single day after beating both their revenue and profit guidance and surprising Wall Street to the upside. Intel even claimed they missed out on over a billion dollars in revenue because they couldn't meet demand for their processors. Why? [snorts] Thank Agentic AI. AI agents operate continuously, not in batches. So, there's a need for continuous sustained compute power when you're running Agentic AI algos. And CPUs are designed for these always on cases. So they've been really a hot commodity lately. But what you're seeing is not necessarily a shortage of CPUs, but rather more CPUs are being used per GPU, where in the past you might have something like four GPUs for every one CPU. Now that ratio is closing to almost a 1:1 or even sometimes you'll have more CPUs than GPUs. And this is according to AMD, who by the way is supposedly eating Intel's lunch in the CPU market. But that's exactly why this bottleneck has been so great for Intel because the demand for these CPUs is rising so much that customers are beginning to be a little bit less picky. They don't care if they're Intel CPUs or not. They just want CPUs. A rising tide lifts all boats. That sort of thing. Additionally, Intel confirmed their partnership with SpaceX, XAI, Tesla, that whole group to support their Terrafab project. Intel is planning to be a manufacturing partner for Elon Musk's giant fab project, but we have a few qualms with Intel's foundry business, which we'll talk about later in the video. For now, those are the reasons that we found for Intel's stock bump, but we also put our intern Crog on the case to see what he could find as well. This major 300% share price appreciation in a single year may be tied to the following reasons. You have leadership changes, so the last CEO is forced out for bad performance. You have government equity support which some would say is only as good as the current administration. You have investments from Nvidia and SoftBank at rock bottom prices. And the below seems critical to this story but also a bit of conflict of interest. So you have potential customer wins. Apple is speculated to be one of the foundry customers. You have progress being made in their foundry and then you have AI CPU demand hopes. that there's some conflicts of interest here and we're going to talk about that in a second. But if you look at some of the larger investments made recently into Intel, you see here Soft Bank, the US government, most notably nearly a 10% investment in Intel and of course Nvidia. So the US government bought shares at around $20 a share. That's not bad, right? They used $5.7 billion in grants from the Chips Act and $3.2 two billion dollars in separate government awards. That's because Intel's foundry is quite strategic to the United States. It produces around 90% of chip manufacturing, advanced chip manufacturing in the US. Whilst everyone else has to rely on Taiwan semiconductor, there's some serious geopolitical risk associated with that. The US would like to remove that dependency. That's a big part of this bullish thesis. So for example, Apple would be a great highprofile external customer that would validate foundry technology. It would support the US government's goals of reducing their reliance on Taiwan semiconductor manufacturing company and even limited volumes from Apple would produce meaningful revenues for Intel. Now they say that production timelines are multi-year, so it's not expected until late 2027 or 2028. It's all speculation anyway, but this points to the goal of Intel, which is this plan to build factories to manufacture semiconductors for other chip makers in the United States. And after the last CEO was ousted for poor performance and the new CEO has talked about the importance of foundry since 90% of advanced semiconductor processors are manufactured outside the United States. So all eyes are focused on Foundry as Intel continues to build these capabilities out with help from companies like Nvidia, SoftBank and of course the US government. But when we look at foundry revenues last quarter, we see that the tiniest fraction of those revenues came from external customers. So basically all this capacity that they're developing is being used inhouse. A good way to see that is by looking at inter segment eliminations. So if you add up all of the segments in Intel, you get $21 billion in revenues, but they actually only report around 16. So basically taking Foundry out of the equation. Unlike TSMC, Intel owns product businesses that are competing for the same fabs, engineering resources, and capital as external customers would be. Now, Foundry is ramping output and yields, of course, beating its own internal volume targets. And this is why Intel has raised $20 billion. They actually expect next year to spend significantly higher amounts of money than that building out foundry capabilities. And that's fine because it seems like there's no shortage of capital for a company that's growing quite rapidly with support from the US government. At least their capabilities. Everything comes down to revenues, of course. So, Foundry seems to be both a bottleneck for the company and their biggest future opportunity, and large investors here are really betting on the company's ability to execute. It's a clear turnaround story with some green shoots of hope starting to sprout. But does that merit a 300% increase in share price? Well, that all comes down to valuation really. And when we look at price toearnings ratio, which is appropriate as long as Intel is profitable, we can see that expectations for this year would give them a PE of around 65, while next year that would be around 49. Basically double the benchmark. So it's very richly priced for a turnaround story with all kinds of past turmoil. Seems like investors these days run out and desperately try to find the next big story. These are the give me some ideas people. There have literally never been more ideas in the history of equities for Joe Retail. So start thinking in thematic terms. You want semiconductor exposure. Is that what you're here for? And you looked at the current US administration and thought that was a good place to place your chips. Get it? Fine. This is a bet on domestic semiconductor manufacturing. China goes and takes Taiwan, shares of Intel will go to the moon, right? Well, this story all comes down to spare capacity. If they're already maxed out, if foundaries maxed out based on internal demands, how are they going to be able to supply strategic needs? This is a turnaround story, and we don't invest in turnaround stories. If you're bullish on semiconductors, why not invest in the industry's most important players? a handful of leaders that today are executing at critically important points in the semiconductor supply chain. That's covered in this next video. Give it a watch next. Thanks for taking the time to watch this today.