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The Zacks Analyst Blog Highlights: Intel, Advanced Micro Devices, NVIDIA and Taiwan Semiconductor Manufacturing

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For Immediate Release

Chicago, IL – April 16, 2020 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Intel Corp. (INTC - Free Report) , Advanced Micro Devices (AMD - Free Report) , NVIDIA (NVDA - Free Report) and Taiwan Semiconductor Manufacturing (TSM - Free Report) .

Here are highlights from Wednesday’s Analyst Blog:

Should You Buy Intel (INTC - Free Report) Ahead of Earnings?

Intel Corp. says that the company will announce earnings results on April 23. Since that’s just a week or so away, I thought it would be a good idea to explore the idea of investing in the stock heading into earnings.

So what are the things we should be looking at to determine whether this is a good idea?

The first thing that comes to mind is price. Well of course, price is important, especially since the stock has done well of late, raising questions about its having any additional upside.

While jumping significantly after Mar 20, its price-to-2020 sales estimate remains at the median level for the last six months. The price to forward 12 months’ estimated earnings paints a similar picture, with the current P/E slightly below the median for the period. The S&P 500 is priced lower in terms of sales and similarly in terms of earnings.

In layman’s terms this means that the shares aren’t overpriced given the current level of revenue and earnings estimates. The S&P 500 is priced equally conservatively. The words in italics are significant, so let’s dig further there.

Analysts currently expect the company to report March quarter revenue and earnings growth of a respective16.8% and 43.8%. That’s despite slight reduction in estimates over the last seven days. For comparison, we can take a look at the tech sector’s expected revenue and earnings growth for the quarter, which currently stand at 3.0% and -1.1%, respectively. The S&P 500 average doesn’t look as good either, with revenue and earnings growth expectations at a respective1.6% and 9.0%.

So on the valuation consideration alone, Intel stock looks cheap.

Technicalities aside, how is the company doing?

There are three pieces to this. The first one deals with Intel’s own product roadmaps and recent performance history, the second deals with competition and the third, current market dynamics, including the impact of the pandemic.

Intel’s own product roadmap execution remains sluggish, especially for those who have followed the company a long time and lived through its weak leadership and the squandering of its process lead.

The good news is that the company did start shipping its 10nm family last year and has some exciting stuff lined up for this year as well. That includes new server chips (while it says that the 14nm version is on track to ship this quarter, a delay could mean it moves straight to 10nm). 10nm processors with 2.3-5.3GHz speeds enabling high frame rates and desktop-like performance on a laptop will find their way into more than 30 thin-and-light devices and 100+ laptops overall this year.

As Intel’s launch dates became more unpredictable, rumor mongers started working overtime. So now we don’t know for sure whether there’s going to be a 10nm processor this year, but it looks like we will.

If all goes well, 7nm will come to market next year, likely allowing it to catch up with Advanced Micro Devices and NVIDIA on the process side (both skipped 10nm to move straight to 7nm).

What all this boils down to is that while some Intel chips could lag its rivals in some ways, its product pipeline is compelling at this point. Execution will be key of course and will depend to an extent on the challenges the current health crisis throws up.

Additionally, its recent performance history has been stellar. Analyst estimates on Intel in the last four quarters can only be called conservative ($0.87 in March 2019, $0.89 in June $1.24 inSeptember and $1.24 in December), which the company topped each quarter: by 2.3% in March 2019, 19.1% in June, 14.5% in September and 22.6% in December.

So it’s definitely doing something right.

Intel does have some stiff competition, however. With Lisa Su at the helm, AMD is picking up the dollars in the server segment. Its new products further position the company for growth in the enterprise, cloud and HPC segments. This is a concern for Intel, which looks set to yield market share.

While in general it can be said that the market is large and fast-growing enough to accommodate two (or more), Intel also stands to lose advantages that accrue to a player that has dominated the scene for long. It also continues to battle NVIDIA for HPC and AI customers. AMD competition is also coming in laptops.

So it appears that in the foreseeable future, Intel will win some and lose some. It’s something of a paradigm shift that investors must get used to.

As far as current market dynamics are concerned, the first would be Intel’s own manufacturing glitches that have not only created opportunities for competitors, but also led to component shortages and pent-up demand.

The second, and one that’s foremost on everyone’s minds, is the pandemic. This is a big swing factor with respect to Intel and its peers. While Intel’s product line, its recent performance and competitive position may be supportive, it’s a fact that the company still makes most of its products in its own fabs in the U.S. while AMD and NVIDIA outsource manufacturing to Taiwan Semiconductor Manufacturing. Taiwan has already flattened its curve and is in a better position to get back to production than the U.S., which cannot safely come out of the lockdown soon.

On March 20, Bloomberg’s Ian King quoted from a letter by Intel CEO Bob Swan to its customers, in which he said that he was “inspired by the deep commitment of our teams to sustain our manufacturing, assembly, test and supply chain operations in Oregon, New Mexico, California and Arizona, as well as Israel, Ireland, China, Malaysia, Vietnam and other Intel and partner locations around the world.” But the world has changed a lot since then, so this is an update we’ll have to wait for.

Conclusion

Intel shares deserve a discount because of the manufacturing concerns. The shares look fairly valued at these levels, but I would be a buyer if they drop below $55.

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