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Why Intel (INTC) is an Excellent Technology Pick Right Now

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Intel Corporation (INTC - Free Report) is riding high on robust performance from the data-centric portion of its business. Data Center Group, Internet-of-Things Group, Non-Volatile Memory Solutions and Programmable Solutions Group form the crux of the company’s data-centric business model.

The data-centric part contributed almost 44% of revenues, up from roughly 40% reported in the previous quarter. Additionally, strong growth from this part of the business fully offset PC market weakness which affected Client Computing Group (CCG) revenues. CCG accounted for almost 55% of the top line in the quarter.

Intel’s initiatives in the data center, cloud computing, artificial intelligence (AI), autonomous vehicles and Internet of Things (IoT) is lowering dependence on the PC market. These rapidly-growing market segments present significant prospects for the semiconductor giant in the near future.

The Zacks Consensus Estimates for 2017 and 2018 earnings have increased significantly over the last 30 days, primarily driven by strong third-quarter results.

Moreover, Intel currently has a trailing 12 month P/E ratio of 14.04, which compares favorably with what the S&P 500 index has witnessed over the last year. Additionally, the company’s dividend yield of 2.44% makes it an attractive investment.

Intel’s shares have returned 23.2% year to date, substantially outperforming the 16.5% rally of the S&P 500 index.

 



 

Autonomous Vehicles: A Key Catalyst

Intel is striving to penetrate the rapidly-growing advanced driver assistance systems (ADAS). Per Boston Consulting Group’s (BCG) estimates, the autonomous car market will be worth $42 billion by 2025 and $77 billion by 2035. By 2035, more than 12 million fully autonomous and 18 million partially autonomous cars are expected to be sold per year, globally.

The acquisition of MobilEye now enables Intel to offer almost anything related to self-driving vehicles — cameras, in-car networking, sensor-chips, roadway mapping, cloud software, machine learning and data management.

Management noted that in 2017, Mobileye has won 14 ADAS designs across 14 automakers, better than the 12 wins the company recorded in 2016.

Intel has been a supplier to Alphabet inc’s (GOOGL - Free Report) Waymo self-driving car unit, which was revealed in the last quarter. Additionally, per Bloomberg, Intel will now be supplying the chips powering the infotainment systems in Tesla Model 3s and new versions of other cars. This is significant because Intel displaces NVIDIA Corporation (NVDA - Free Report) , which has been making waves in the automotive segment.

Intel’s automotive partner base has also expanded in the last two quarters. Fiat Chrysler Automobiles has joined the company’s team, which also includes BMW and Mobileye.

Intel intends to bring its highly-automated driving (Level 3) and fully-automated driving (Level 4/5) solutions into production by 2021. Moreover, in August, the chip-maker announced plans to build 100 “level 4” vehicles to test its self-driving technology. The company also partners automotive manufacturers like BMW and Fiat Chrysler.

Intel also formed the Automotive Edge Computing Consortium which aims at developing an ecosystem for connected cars to support emerging services such as intelligent driving, the creation of maps with real-time data and driving assistance based on cloud computing.

We believe that the company’s focus on the self-driving car market will boost sales of processing chips, sensor-chips, cloud software and many more, which will ultimately drive the top-line growth.

Zacks Rank & Key Pick

Intel currently sports a Zacks Rank #1 (Strong Buy). Texas Instruments (TXN - Free Report) is another stock worth considering in the sector, flaunting a Zacks rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for Texas Instruments is currently pegged at 9.6% as compared with Intel’s 8.42%.

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