Cloud Computing is a Tailwind for Intel Stock
Rivals are nipping at Intel Corporation’s (NASDAQ:INTC) heels, but INTC stock is still the undisputed king of microchip makers. No firm has been able to knock it off the throne, and that kind of toughness keeps me bullish on Intel stock.
The company has dramatically altered its business, scaling back investment in its personal computer (PC) division and redirecting those resources to formative areas like cloud computing. I’ve taken note of these manoeuvres because they suggest that INTC stock is deeply undervalued.
Data centers are in vogue. Every tech giant from Microsoft Corporation (NASDAQ:MSFT) to Alphabet Inc (NASDAQ:GOOG) is throwing money into the construction of new data centers. Why? Simple; they want to sell space on those servers to other companies. It’s already a lucrative business.
Since Intel is the leading provider of microchips, it has enormous potential to profit from the rise of data centers. However, investors spent the last year pouting about lower PC sales, smartphone sales, and the apparent end of Moore’s Law (an observation that says processing speeds double every year).
Those were serious headwinds for microprocessor stocks; I don’t deny it.
Although INTC stock was insulated by its position as frontrunner, the rest of the semiconductor industry got trampled as investors rushed for the exit. The pain even extended to consumer electronics manufacturers like Apple Inc. (NASDAQ:AAPL), whose shares fell from $133.0 to as low as $90.34.
Investors tend to hold onto that kind of pessimism. It makes them temporarily blind to the obvious fact that cloud computing is going to be a moneymaker for all parties involved.
As a leading supplier to the major cloud computing players, Intel stock is perfectly positioned to catch the updraft of these tailwinds.
Why INTC Stock Will Survive
Knowing the trend is one thing, but picking a winner is another thing altogether. INTC stock is facing competition from old rivals and new ones alike, from International Business Machines Corp. (NYSE:IBM) to Broadcom Ltd (NASDAQ:AVGO).
There are literally dozens of companies trying to profit from the rise of cloud computing, but these battles take place in the shadows. For retail investors, picking the winner in these situations can feel like pin the tail on the donkey; you may as well be blindfolded.
I’ve spoken with plenty of investors who feel this way. They look at a competitive field in which the product is super-technical, and find themselves lost at sea. There’s virtually no way to distinguish between the competitors, they say.
I understand those worries; really, I do. But you don’t need to have a PhD in computer science to know how market dynamics play out. After the dust settles, there are only going to be a handful of players left in this industry.
The rest will either be absorbed through consolidation or run out of the market.
Unless something earth-shattering happens, the frontrunner of the industry (in this case, Intel stock) usually has a reserved spot on the survivor list. Everybody else is really just fighting for second and third place.
The real question that we should be asking is: how much can INTC stock grow from the rise of new data centers? Right now, investors think the potential is moderate. I know that because Intel stock is trading at a price-to-earnings (P/E) ratio of 17.50.
From my vantage point, 17.50 is way too low a P/E for INTC stock. Think of all the Netflix, Inc. (NASDAQ:NFLX) TV shows, Spotify songs, and YouTube videos that are watched on a daily basis. Think of the countless hours that Americans spend surfing the Web or browsing through apps. All of that data needs a home, and Intel stock helps facilitate that.
I know it might sound strange, because investors expect big growth from the tiny startup that no one’s heard of before. They hardly expect it from a giant like INTC stock. But from my experience, big tech stocks are some of the best performers on the market. In fact, our team of tech analysts have compiled an Exclusive Free Report: “Big Tech Stocks Poised for More Growth.” Click HERE to get a free version of this report.