Intel Stock, Brian Krzanich, and What to Look for in 2017
The age of the machine is fast approaching. Hardly a day goes by without some new proclamation either celebrating or, in the case of Elon Musk, warning us about the oncoming artificial intelligence (AI) revolution. Possible existential threats to humanity aside, what’s important for investors is which companies will be on the cutting edge of machine development.
Intel Corporation (NASDAQ:INTC) is shaping up to be one of those leaders. With the INTC stock price performing well over the past 12 months and the company investing heavily into the next generation of machine learning tech, now may be an opportune time for an Intel investment. Currently the Intel stock price is $36.20, the highest it’s been since the early-2000s tech boom and bust.
If you want to know why Intel stock may be the right pick for you, consider first its competition. Advanced Micro Devices, Inc. (NASDAQ:AMD) and NVIDIA Corporation (NASDAQ:NVDA) both were the stock darlings of 2016, rising 297% and 221%, respectively. While the two companies’ combined market cap is less than half that of Intel, it does show that the chip-making industry is booming, and a large part of that is thanks to the growing influence of machine learning and AI.
Just last year, Google’s “DeepMind” (by Alphabet Inc (NASDAQ:GOOG)) was able to best humanity’s top players in a game called “Go.” Why is this important? Because, unlike chess, Go is a dramatically more complex game involving far more possible outcomes, which is why machines had lagged behind for so long, until now. (Source: “How Google’s Amazing AI Start-Up ‘DeepMind’ Is Making Our World A Smarter Place,” Forbes, February 2, 2017.)
With Intel looking to be on the forefront of developing chips for artificial intelligence and helping expand it from besting humans at board games to real-world everyday applications, you have strong momentum for Intel stock going forward.
3 Reasons for an Intel Investment
Below I’ve compiled three arguments for why a bull investor in the tech field could do worse than an Intel share investment.
1. The Trump Bump
President Donald Trump has certainly had one of the most unusual starts to a presidency in recent memory. But the political shouldn’t distract from the potential benefits that companies like Intel—and INTC stock—stand to gain if Donald Trump is able to enact several of the promises he made on the campaign trail.
Chief among those promises was a focus on job creation, lower taxes, and a repatriation deal for large multinational companies (like Intel) to register more of their profits on U.S. soil versus taking advantage of more generous tax rates abroad.
Not to mention that CEO Brian Krzanich recently met with Trump, sparking the revival of an Intel factory in Arizona. The project will cost $7.0 billion and will employ up to 3,000 people, which fits right in to Trump’s economic plan. (Source: “Intel CEO reveals what it is really like to meet with President Trump in the White House,” Yahoo! Finance, February 13, 2017.)
Krzanich told Mad Money host Jim Cramer that under the current tax system in the U.S. relative to preferable rates overseas, the factory would roughly cost $2.0 billion more over the span of 10 years.
“The tax plan that the administration is putting forward would drastically reduce that … we are betting on that tax plan coming into fruition,” Krzanich said to Cramer.
“It was a good chance to sit down and talk about everything from immigration, tax reform, our position on diversity and women and underrepresented minorities in the workplace. All of those areas we were able to talk to both the president but also really substantive time with his staff,” Krzanich said.
Between favorable tax changes and an amicable relationship between the company’s CEO and the country’s president, you have what may turn out to be a boom year for INTC stock. These are, of course, possibilities predicated on Trump’s ability to push through policy despite the mounting political pressures he has faced in his fledgling administration.
Barring any unforeseen developments, Trump and the Republican Congress should be able to pass several business-friendly policies that will positively impact growth on the Intel stock chart.
2. Future Tech
As previously mentioned, chip-makers have already seen their shares rise in value on the backs of potential in the artificial intelligence and machine learning markets. But that’s only part of the puzzle.
The company claims to hold a three-year lead in the effective logic cell area over its competitors with its superior 14-nanometer and 10-nanometer technology. While that claim has been challenged—especially considering the 7-nanometer technology being developed—if true, it shows that Intel stock’s dominance will not be short-lived. (Source: “Intel Corporation Claims 3-Year Manufacturing Tech Lead,” Yahoo! Finance, February 14, 2017.)
Then you have other plays like forays into the augmented and virtual reality (VR) sectors, as well as muscling into the hot gaming market where the chips will serve VR gamers by speeding up their rigs. (Source: “Why Intel Corporation Is So Excited About Virtual Reality,” NASDAQ, February 13, 2017.)
Acquisitions like that of Nervana Systems, a company that focuses on machine deep learning, for $400.0 million also shows investors that INTC stock is looking to the future. (Source: “Intel is paying more than $400 million to buy deep-learning startup Nervana Systems,” Recode, August 9, 2016.)
And that’s without mentioning Intel’s strides in the Internet of Things (IoT), cloud computing, or even how its tech contributed to the drone spectacle during Lady Gaga’s Super Bowl halftime show.
Not the sexiest reason for investing by a long shot, but dividends are guaranteed returns on investment.
Consider that Intel stock is currently paying $0.26 per share on a quarterly basis, with an annual dividend yield of 2.85%. AMD, while having had an explosive 2016, pays nothing. NVIDIA pays $0.14 per share per quarter, which amounts to a little over half of what Intel dolls out.
What’s Next for the INTC Stock Price?
Chart courtesy of StockCharts.com
Intel has positioned itself to be a strong player in future tech if its innovation models can pan out, as IoT, cloud computing, VR, AI, and a whole host of other fast-growing industries could choose Intel as the supplier of choice for chips that power these potential technological revolutions.
On the other hand, a savvy Intel investor will also want to know what’s going on in the near term for the company.
Intel has been down slightly in 2017, dropping by about one percent, largely due to Brian Krzanich delivering an outlook that revenue will be flat in 2017 as the company expects the personal computer (PC) market to continue shrinking, though the rates of that decline have been slower than industry analysts have anticipated.
The speed of that decline—or rather, lack thereof—helped fuel a near-25% gain for INTC stock over the past 12 months. (Source: “How Intel Hopes to Impress Wall Street and Boost Its Stock Price,” Fortune, February 8, 2017.)
Despite the outlook and subsequent share hit the company took, the Intel Q4 results were strong, with revenue from the data center business rising 8.4% to $4.67 billion in the fourth quarter. Revenue from its PC business grew 4.3% to $9.13 billion. (Source: “Data center growth drives Intel’s fourth-quarter revenue, profit beat,” Reuters, January 26, 2017.)
The company also beat analysts expectations in net revenue and earnings per share, while net income fell slightly when compared to the same period a year earlier.
Apple Inc. (NASDAQ:AAPL) made a deal to give about half of its business for the “iPhone 7” to Intel and, with the new modem chips it’s making for mobile devices on the way, the Intel could see even bigger gains in that part of the market. That’s even more likely considering that QUALCOMM, Inc. (NASDAQ:QCOM), the leading modem chip-maker, is currently facing a number of lawsuits and investigations, including one from a major client, Apple.
So where does that leave INTC stock? What you have is a legacy chip producer with a huge market cap and a number of different plans to offset slowing PC sales. The computer market is still the bread-and-butter of the company, but if any or all of Internet of Things, cloud computing, artificial intelligence, and machine learning pay off, Intel stock could be in for some big gains.