Intel Corporation INTC shareholders had to endure tumultuous times this year as the company grappled with challenges in its foundry business. Amidst the struggle, Intel made a strategic move to spin-off its foundry division, struck a significant deal with Amazon.com, Inc. AMZN, and entertained a potential acquisition by QUALCOMM Incorporated. These developments culminated in a remarkable surge in its stock prices last week.
Revival of Intel Stock
Intel faced a turbulent year, witnessing a 57% decline in its stock price while the Semiconductor – General industry enjoyed a robust 93.3% surge. The company grappled with costly technological advancements leading to financial concerns, prompting dividend suspensions and job cuts.
Intel’s inability to capitalize on the thriving artificial intelligence landscape further impacted its stock performance. Yet, a series of events triggered a rebound for Intel last week, with shares skyrocketing over 11%, marking its most significant weekly gain since November.
The Factors Behind Intel’s Stock Price Surge
A report from the Wall Street Journal indicated Qualcomm’s interest in a potential takeover of Intel, promising mutual benefits. While Intel specializes in personal computer and server chips, Qualcomm excels in mobile products. A merger could leverage each other’s expertise and bolster market presence.
Additionally, Intel’s in-house manufacturing capabilities make it an attractive proposition for Qualcomm, eliminating the need for outsourcing and enhancing profit margins.
Furthermore, Intel announced a partnership with Amazon, with Amazon Web Service (AWS) leveraging Intel’s custom chip designs to counter NVIDIA Corporation’s price hikes. This collaboration enables Intel to regain market share from NVIDIA, a dominant force in the AI realm.
Lastly, Intel revealed plans to convert its struggling foundry business into a separate entity. This move alleviates concerns among investors about sharing chip designs with competitors and allows the foundry segment to secure funding independently. The initiative aims to boost Intel’s return on capital invested by attracting U.S. chipmakers to domestic manufacturing.
Assessing Intel’s Future Prospects
Intel’s CEO, Patrick Gelsinger, places his bet on these strategic deals and the foundry business spin-off to enhance profitability and drive stock prices higher. Notably, leading analysts have hiked the short-term price target for INTC by 36.1% from its recent close of $21.14, with a maximum price target set at $66, translating to a 212.2% upside potential.
However, challenges loom as Arm Holdings plc poses a threat to Intel’s server and networking domain, while rival Advanced Micro Devices, Inc. has made strides in high-performance computing. Intel’s lofty valuation at 81.3X forward earnings compared to the industry average of 47.7X raises concerns about its current struggles.
Investors are advised caution in approaching INTC stock due to its inherent risks. Existing shareholders are encouraged to hold their position given Intel’s promising trajectory towards becoming the American counterpart of TSMC, provided the recent strategic moves yield positive results.
The company currently holds a Zacks Rank #3 (Hold).