Amidst the explosion of new technological applications, the semiconductor sector has seen shortages and significant spikes in demand. However, the industry leader in chips, Intel (INTC 1.21%), is one that is still having trouble.
Although it dominated the market for many years, its development challenges caused other chip designers and producers to outperform it. With attempts to regain the technological edge and make significant investments in new foundries, Intel’s current CEO Pat Gelsinger is trying to put the company back on top. Even if it is too soon to predict Gelsinger’s success, cautious investors might want to take a look at the semiconductor company for three reasons.
1. It still generates enormous profits
Even with all the attention on companies like Nvidia and AMD, Intel is still a major player in the market. Even though it no longer has the title of “biggest chipmaker in the world,” it still outperforms most of its competitors.
Just under $34 billion in sales was earned by Intel in the first half of 2022, a decrease of 14% from the same time in 2021.
In contrast, AMD reported sales of little over $12 billion. Despite Intel’s second fiscal quarter ending one month before Nvidia’s, it achieved $15 billion in revenue in the first half of its fiscal year. With $36 billion in sales during the same period, Taiwan Semiconductor, which, according to TrendForce, produces more than half of the world’s semiconductors, has just surpassed Intel.
Additionally, as the economy has slowed, subsectors like PC sales have suffered a decline, which will likely only temporarily offset the decline in revenue. Once it constructs its intended foundries in the United States and Europe, Intel’s move into the foundry industry may also act as a revenue generator. This makes it likely to continue being a significant player in the market.
2. Dividend from Intel
The stock price’s decline also has the effect of making its payout more alluring. It now pays stockholders $1.46 yearly per share. As a result, it now boasts the highest cash yield in its history at 5.5%.
In comparison to the S&P 500, which gives a dividend yield of about 1.8%, Intel performs well. Additionally, it compares favorably to a number of the tech sector’s top dividend payers, such as IBM’s Dividend Aristocrat, which also provides a 5.5% cash return.
Additionally, Intel has accepted its role as a dividend payer. Despite these difficulties, the compensation has been rising steadily since 2004. Even while that is well short of the 25 years needed to qualify for Dividend Aristocrat status, it is a long enough history to have an adverse effect on the stock price if the run of payout increases comes to an end.
3. The low valuation
Additionally, Intel’s share price has dropped to what appears to be an absurdly low earnings multiple. The price to earnings ratio is now below six. In comparison to its significant competitors, this makes it a cheaper stock.
However, despite that earnings multiple, the price-to-book value ratio is likely the best indicator of Intel’s current state. The stock currently trades at a record low of less than 1.1 times book value.
Investors have, understandably, been turned off by the company’s declining sales and difficulties to catch up to its competitors. However, valuation does matter at some point, and Intel may be too cheap at its book value to pass up.
Making sense of Intel
Intel is unquestionably a struggling corporation. Although it is making significant investments to enter the foundry market and retake the technological lead, it is still unclear if it will be successful in either attempt.
However, given its present income levels, it is still a significant participant in the sector. Investors may have a once-in-a-generation purchasing opportunity since they can purchase Intel near its book value and get a substantial dividend return.
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