Intel's Stock Surges on Positive Earnings and Strategic Moves

Huge News for Intel Stock. Is it Time to Buy? | The Motley Fool

The storied semiconductor giant is going through a rough patch. Customers are now lining up to help it get through to the other side. Huge news came through for Intel (INTC 3.30%) recently as it announced an extended partnership with Amazon's (AMZN 1.19%) cloud computing division called Amazon Web Services (AWS). The partnership revolves around commitments for co-designs on new computer chips on Intel's architecture as well as commitments to spending on Intel's new manufacturing plants. Intel's stock shot up around 10% on the news but has since faltered again. The stock remains down about 70% from its 10-year high due to competitive pressures from other computer chip manufacturers and as Intel fell behind in advanced semiconductor manufacturing in recent years. However, I wouldn't underrate this news from Amazon, which is one of, if not the largest, spender on computer chips globally. It is committing to Intel despite rising doubts about the once-dominant computer chip manufacturer. Does that mean you should commit to Intel's stock? AWS is the largest cloud computing provider. The lifeblood of a cloud computing business is self-explanatory: It is built on computer chips. This is why Amazon is such a large purchaser of semiconductors, spending an estimated tens of billions of dollars on computing products and adjacent services to power its monster data centers. Intel has historically been a huge supplier to AWS and other data center customers but has fallen behind in the age of artificial intelligence (AI) to the likes of Nvidia and Advanced Micro Devices. Given Nvidia's superiority in this new field, the company has been able to implement extreme price hikes on its customers like AWS. This has helped push Nvidia's stock up 2,500% in the last five years. All this is to say that the Amazon and Intel partnership makes sense. Intel needs financial commitments to close the gap with Nvidia, and Amazon would like more competition so Nvidia cannot implement huge price increases when selling to AWS. In the long run, this can save Amazon money by making it less dependent on Nvidia, while also providing a pipeline for billions in spending for Intel's upcoming computer chip products. The partnership is interesting, as both Intel and Amazon will be investing in co-designing advanced computer chips. That means the companies will be working hand-in-hand to catch the competition. One part of the Intel-Amazon partnership is chip design. The other part -- and perhaps more important -- is the fact the chips will be custom-designed for Intel's new manufacturing plants in Ohio. Intel is spending tens of billions of dollars on these plants in order to build its new foundry business, which means manufacturing computer chips for third parties like Amazon. Intel historically was vertically integrated and only manufactured its own chip designs, but this led it to fall behind technologically in the last 10 years. So far, Intel's foundry business is not doing well. It generated just $4.3 billion in revenue last quarter and had a $2.8 billion operating loss. In order to make the business profitable, Intel will need huge commitments from customers to cover the large fixed costs of the manufacturing facilities. Securing Amazon as a customer is a big first step. Lastly, investors should watch for Intel grants from the United States government. With the CHIPS Act, the U.S. is subsidizing computer chip manufacturing to help offset geopolitical risks with China. Intel was already awarded $3 billion for defense-focused chip designs, which is a good start, but it will be a big help if more comes its way. Intel's financials look rough right now. The company is burning more than $12 billion in free cash flow each year as it loses customers to Nvidia and invests in new foundry manufacturing facilities. In a vacuum, the stock looks uninvestable even though it is down 70% from all-time highs. This may be the worst Intel ever looks, though. The U.S. government wants it to succeed and probably won't let the company fail, with more subsidies likely coming its way. Amazon spends a boatload on computer chips every year and just reaffirmed its position with Intel. Intel has close to $30 billion in cash and equivalents on its balance sheet, which will help with the temporary cash burn. Headwinds from the foundry build-out will subside once these expensive manufacturing plants start operating. Add it all together, and I think it makes sense to go dumpster diving for Intel shares right now. This is a once-beloved brand that many want -- some might say need -- to succeed. Consider buying Intel stock and holding for the long term.

3 Reasons Why Intel Stock Sealed a Strong Week: Time to Buy? - Advanced Micro Devices (NASDAQ:AMD), Amazon.com (NASDAQ:AMZN)

Intel Corporation INTC shareholders had to bear painful losses throughout this year as the company struggled to make a breakthrough in its stumbling foundry business. However, Intel's foundry spin-off move, a deal with Amazon.com, Inc. AMZN, and a probable QUALCOMM Incorporated takeover boosted its share prices last week. Does this mean the INTC stock has room to run soon, or is it just a temporary uptick? Is it time to buy the INTC stock, or is it prudent to wait for an opportune moment? Let's see - Intel Stock Bounces Back It's been a tough year for Intel, with its shares down 57%, in sharp contrast to the Semiconductor - General industry's gain of 93.3%. Intel has been dealing with costly technological advancements that have led to various cash concerns and compelled the company to suspend dividend payments and cut jobs. Image Source: Zacks Investment Research Intel's failure to take advantage of the booming artificial intelligence revolution has also taken a toll on the stock. However, a trifecta of events helped the Intel stock to rebound last week, with the company's shares soaring more than 11%, its best weekly performance since November. What Led to the Rise in Intel Share Prices? As per a Wall Street Journal report, Qualcomm has approached Intel for a probable takeover, which should bode well for both companies. Intel manufactures personal computers and server chips, whereas Qualcomm makes mobile products. So, a deal should help both companies to make the most of the other's strengths and improve market share. Moreover, Intel has a manufacturing hub that makes its chips. Thus, a potential deal will allow Qualcomm to have its manufacturing facility and not pay for outsourcing, eventually boosting margins. Intel, meanwhile, has declared a new partnership with Amazon, where Amazon Web Service (AWS) will use Intel's custom chip designs. Amazon is partnering with Intel for chip design since NVIDIA Corporation has increased its pricing for the e-commerce giant. The Intel-Amazon deal will help the semiconductor company to regain market share from NVIDIA, which is becoming a worldwide leader in AI. Lastly, Intel declared it would convert its foundry business into a subsidiary. This is positive news for Intel investors since they were concerned about the company handing over chip designs to industry rivals. The spin-off would help the struggling foundry business secure funding since this segment hasn't performed well recently compared to Intel's design arm. Intel's foundry business faced stiff competition from Taiwan Semiconductor Manufacturing Company Limited, or TSMC, and reported operating losses in the first half of 2024. Nevertheless, separating the foundry business would improve Intel's return on capital deployed. Intel also intends to spend heavily on its foundry business to lure U.S. chipmakers to rely more on domestic manufacturers than foreign companies like TSMC. Does Intel's Strong Week Justify a Buy Decision Today? Intel CEO Patrick Gelsinger is banking on the tech deals and separation of the foundry business to improve the bottom line and drive share prices higher. Prominent brokers have also increased the average short-term price target of INTC by 36.1% from the stock's last closing price of $21.14. Analysts have set the highest price target at $66, an upside of 212.2%. Image Source: Zacks Investment Research However, Arm Holdings plc ARM has disrupted Intel's server and networking space. At the same time, Intel has lost ground over its competitor Advanced Micro Devices, Inc. AMD which has progressed in manufacturing high-performance processing machinery. Intel's current expensive valuation also doesn't justify its struggles. Per the price/earnings, the INTC stock presently trades at 81.3X forward earnings. However, the industry's forward earnings multiple is 47.7X. Image Source: Zacks Investment Research Hence, investors should be cautious before buying the INTC stock since it's still a risky bet. Those invested in the INTC stock should stick to it since the company has a huge upside once it becomes the American version of TSMC, and the recent deals pay off. The company currently has a Zacks Rank #3 (Hold). To read this article on Zacks.com click here. Market News and Data brought to you by Benzinga APIs