Intel Corporation: Is INTC Stock a Contrarian Tech Play?

Don’t Ignore This Legacy Tech Company

Investors love tech stocks, and the COVID-19 pandemic has only made the sector more appealing. During the lockdown months, it was technology that allowed people to work, go to school, and entertain from home.

But not all tech stocks have shot through the roof. For instance, Intel Corporation (NASDAQ:INTC)—perhaps the most well-known chipmaker in the world—is actually down by 7.7% over the past 12 months. To put that in perspective, the tech-laden Nasdaq Composite returned more than 43% during the same period.

Tech stocks tend to attract a lot of momentum investors. When a stock is soaring, market participants often rush to buy it, causing the price to go even higher. We saw plenty of those instances earlier this year. On the other hand, if a company’s stock doesn’t move much, it generally won’t get much attention, even if it runs a solid business.

For the most part, Intel stock didn’t enjoy the attention of high-momentum tech plays, but it still might be worthwhile for investors to give Intel Corporation a second look.

You see, the reason behind INTC stock’s most recent drop was the company’s earnings report. On April 22, Intel reported that, in the first quarter of 2021, it generated $18.6 billion of adjusted revenue and $1.39 in adjusted earnings per share. (Source: “Intel Reports First-Quarter 2021 Financial Results,” Intel Corporation, April 22, 2021.)

Considering that Intel stock tumbled by 5.3% on the trading day following the earnings release, one might think the company’s numbers missed Wall Street’s expectations. But that wasn’t really the case. On average, analysts expected Intel to earn an adjusted profit of $1.15 per share on $17.9 billion of adjusted revenue.

In other words, both the company’s top- and bottom-line numbers beat Wall Street’s estimates.

That said, the numbers aren’t impressive when compared to the year-ago figures. In the first quarter of 2020, Intel Corporation generated $18.6 billion in adjusted revenue and $1.41 per share in adjusted earnings. So the company’s 2021 first-quarter revenue was flat, and its bottom line slipped by about one percent year-over-year.

There were, however, several exciting points worth noting in Intel’s business.

The first one is the company’s Client Computing Group, which includes Intel’s chips for personal computers (PCs). In the first quarter of 2021, revenue from Intel’s Client Computing Group grew by eight percent year-over-year to $10.6 billion and accounted for more than half of the company’s total revenue.

Intel Corporation said its PC unit volumes rose by 38% year-over-year in the first quarter. Moreover, the company’s notebook platform volume skyrocketed by 54% year-over-year and set a new company record. When the Client Computing Group—by far Intel’s biggest segment—is getting this kind of tailwind, it should be considered good news for INTC stock.

And then there’s Mobileye, which is an Israeli autonomous vehicle technology company that Intel Corporation acquired in 2017. Now a subsidiary of Intel, Mobileye delivered $377.0 million of revenue in the first quarter of 2021, representing a 48% increase year-over-year and setting a new record for the segment.

Moreover, Intel’s management has raised their outlook. For full-year 2021, they expect the company’s adjusted revenue to be $72.5 billion and its adjusted earnings per share to be $4.60. Previously, their projection for the top- and bottom-line numbers were $72.0 billion and $4.00 per share, respectively.

Intel Corporation (NASDAQ:INTC) Stock Chart

Chart courtesy of StockCharts.com

Analyst Take

Trading at $57.12 per share as of this writing, Intel stock has a price-to-earnings ratio of about 12.8. In today’s market, that means it’s not exactly priced for growth.

But I should point out that Intel Corporation is investing $20.0 billion in new microchip manufacturing plants and plans to become a foundry (a contract chip manufacturer) so it can make other companies’ chips alongside its own.

In an era when demand for microchips is soaring around the world, Intel’s future could be brighter than what INTC stock’s price performance seems to be suggesting.