Rethinking INTC Stock
Despite overall weakness in microchip stocks, Intel Corporation (NASDAQ:INTC) actually finds itself in a pretty great position this year. You see, the company is gearing up for a fight that could send INTC stock surging in the near future…
The company is at the forefront of an emerging technology trend that could be bigger than the social media boom. This trend is staggeringly important to the future of the Internet, which is why it’ll make the next generation of millionaires.
Going bullish on this trend today is like going bullish on Apple stock in 2001 or Facebook in 2005. It’s still early days, but the potential is clear. If investors choose to opt into this trend today, they could catch a majority of the upside yet to come.
If you’re wondering what I’m talking about, take a second to consider this: Right now, you’re not reading this article on a piece of paper. You’re reading it on a computer, smartphone, or tablet. It is a digital imprint of what I wrote on my computer.
But it’s not magic. The article has to be stored somewhere for you to have access to it. It’s not like your device is getting it directly from mine, so haven’t you ever wondered where it’s stored? The answer is surprisingly simple. It’s stored at a data center.
There is no physical delivery of any kind; it all gets transmitted electronically. However, there is a data center needed to process all this back and forth. It is the storage site for all this information, but most companies don’t build their own data centers. Instead, they just buy space on someone else’s data center.
Amazon.com, Inc., Alphabet Inc, Microsoft Corporation—all these giants have started leasing out their surplus storage space and computing power to reap enormous profits. It’s called cloud computing.
They’ve created user-friendly apps and web sites where customers and business can easily sign up for a sliver of their data centers. Everything to do with the “cloud,” from storage to backing up your files, is done using these data centers.
Intel makes the chips that power these data centers. It is facing challenges from old rivals like IBM and AMD, but Intel is still the undisputed market leader.
The company is going head-to-head with some of the heavyweights in its industry, but make no mistake, it still has the crown. Intel is still the “King of Microchips.”
I’m optimistic that the company can hit its growth target every year. It wants to compound 15% revenue on an annual basis between now and 2020, with 80% of that growth coming from the data center division. I believe these numbers are soft. Intel is probably lowering expectations so it can beat them in the coming quarters. (Source: “Intel Reports First-Quarter GAAP Revenue of $13.7 Billion,” Intel Investor Relations, May 2, 2016.)
I’ve seen this tactic a thousand times.
A company is riding high on a technology trend but they stretch the bottom end of their forecasts to score an earnings beat in the next quarter. There’s nothing wrong with it; managing expectations is just a trick of the trade. But I’m not buying it.
Think about how much online content is consumed today.
Millions of hours of Netflix programming, Facebook posts, Snapchats, and Spotify streaming. It dwarfs the amount of content we had five years ago, let alone 10 years ago. Even traditional TV broadcast networks are starting to transmit their content via the Internet.
Can you imagine how much content will exist five years from now? We’re talking about the entire Internet at this point, from web sites to smartphone apps. The growth is going to be staggeringly huge and Intel is the chief supplier that will keep it going.
That’s how I know its 15% targets are tame. But I’ll humor the company. A 15% growth rate compounded over four terms would give us a growth rate of 74.9%. If the stock price mirrors that sales bump, we’d see Intel stock reach somewhere between $57.00 and $58.00. I think that estimate is fair, but at a much faster rate.
INTC stock could hit that mark in the next 24 months.