Intel launches stock market acquisition (NASDAQ ፡ IN INTC)

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President Biden spoke about nation building

Chip Somodevila

Thesis

Intel (NASDAQ ፡ day INTC) Following the release of the March quarter earnings, the stock price has experienced significant corrections for a number of reasons. The basics of business are declining and the numbers are worse than last year. EPS It dropped from $ 1.39 to $ 0.87 last year. The operating margin was under pressure and contracted from 12 percent to 23.1 percent compared to last year. At the same time, the wider market itself has received correction. As you can see from the chart below, the S&P 500 fell 9.2% YTD, and most corrections began in April.

Such corrections have led to a compromise. The market pendulum has gone to extremes of fear. In this article, you will see that investors are not only paying a discount for the core chip business, but also getting the foundation’s business for free. As detailed below, the market completely ignores other incentives and growth opportunities (such as Data Center, AI and Mobile, to name a few).

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As you can see in the next chart, INTC is currently trading at a lower price of 2.0 x P / S over the next ten years. It is relatively inexpensive to say the least. Historically, the stock has traded at an average P / S range of 1.8x to 4.2x, with a long-term average of 2.9x. For reference, the total market represented by the S&P 500 is currently estimated at 2.48 x P / S, and the Nasdaq 100 is around 4.6 x. Thus, INTC’s current core business is about 20% of the S&P 500, about 30% of the historical average and more than 50% of the NASDAQ 100 index.

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Consider the following table to set things straight. The total revenue for 2021 is $ 74.7 billion. And the current core chip business (Customer Computing Group and Data Center Group) generates about 75% of its total revenue, which is about $ 56B. Considering the P / S ratio 3x, close to the historical average, these two existing courses cost $ 168B. As of this writing, the market capitalization is estimated at $ 153 billion. Such investors are getting big business at a small discount and getting all the other parts for free.

In fact, many of these other units are still in their infancy and the ultimate success is uncertain. So here I will focus only on one of them, the basic motivation, which I see as the most specific item in the next detail.

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Source: Moril Age Report

IFS initiative

IFS is relatively low at this level (overall in Q1 2022 to around $ 283 million, with a quarterly earnings record so far). Revenue for 2022 Q1 increased by 175% Yoi with increased equipment supplies and automotive revenue. INTC is actively monitoring IFS through both purchases and its own investments.

Ahead of the purchase, Tower announced that it has purchased a semiconductor for $ 5.4B. Purchase provides direct access to Chip Foundation in the following news release comments (added and emphasized by me).

  • The purchase It speeds up Intel’s road. It is currently one of the industry’s largest diverse technology portfolios, providing a global base of services and capabilities.
  • High More shopping Integrates Intel leading edge nodes and dimensions with Tower Semiconductor Special Technologies and customer-first approach…
  • Marketing expected Immediately recognized EPS to Intel GAAP.

By itself, Ohio plans to invest $ 20 billion in infrastructure. And the company has officially announced that it has acquired the land needed for this foundation factory, according to Columbus Dispatch. In the meantime, he announced new R&D and impressive investments in Europe. Its IFS has attracted the interest of more than 100 customers, including major names such as Qualcomm and Amazon (AMZN).

Finally, the IFS initiative will receive government support. The White House recently pledged $ 52 billion to build the American chip industry. And INTC’s IFS will benefit greatly from the action (although there are uncertainties in the emergency room).

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INTC Revenue Report

Planned Returns

In the next few years, the global fundraising industry is expected to grow to $ 100 billion. As shown in the table below, I will project INTC’s IFS to have a market share of around $ 10B in a few years ($ 20B investment at 0.5 x asset volume). So, assuming that their current business is completely stable by 2021, if its total revenue is IFS online, it will be $ 84.7B or $ 20.2 per share. With a 3.0 x P / S multiplier, the planned stock price will be $ 60.5, which is 59% of the current price.

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Other incentives and risks for INTC

In addition to the IFS initiative, there are a few other incentives that are being offered to INTC. As shown in the previous chart, many of the new units (such as NEX and Mobileye) all had quarterly earnings and rapid growth. In particular, INTC has tapped Goldman Sachs (GS) and Morgan Stanley (MS) to lead the mobile unit IPO, Reuters reports. Mobileye can cost up to $ 50 billion (and INTC paid $ 15 billion five years ago). The IPO may provide additional resources for INTC to track high-growth and high-margin areas.

Finally, the dangers. As mentioned earlier, the White House has pledged $ 52 billion to build the American chip industry, but there are some uncertainties about this. Last month, Senator Mitch McConnell threatened to block the move if Democrats followed a larger spending package. If CHIPS does not pass, INTC may need to delay or balance IFS.

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