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Sunday, May 26, 2024

Top Trade Alert – April 26, 2024 – Intel (INTC)

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Top Trade Alert – April 26, 2024 – Intel (INTC)

INTC took a hit on earnings but we think it’s way overdone. 

Finviz Chart

Our investing plan all along that their investment cycle would end this year at worst but it may be worse because they’ve shifted to more AI and that’s costing them many Billions more than originally planned. BUT, on the other hand, there’s stimulus money coming in.

Still, back to $30.80 again is just as silly as it was last time if you are a long-term player.

At this price – you can buy INTC for $127Bn, which seems like a joke!

In 2018-2021 revenues were about $75Bn and earnings were about $20Bn. Last year was an investing year and they only made $1.7Bn (75x) and 2024 should be $6Bn (21x) and next year maybe $10Bn (13x) and that’s just on the road back to $20Bn+ in the future so, do you want to buy the company now, for $150Bn, knowing you’ll be getting 7.6% back in 2025 and hopefully more like 15% down the road?

Here’s the analysis by Warren:  

 🤖  Intel’s recent financial and strategic maneuvers reflect a challenging period characterized by significant competition and execution hurdles, particularly in areas crucial for its future growth like AI and foundry services. Based on the detailed materials provided, here’s an analysis of Intel’s earnings, strategic outlook, and a fair value estimate for January 2026:

### Financial Performance and Guidance
Intel’s financial results show a mixed scenario with some segments, like Client Computing, showing growth due mainly to cyclical factors, while other key areas like Data Center and AI underperform due to strong competition from rivals like AMD and Nvidia. The significant downturn in guidance, with expected revenue falling short of consensus estimates, reflects ongoing struggles in key business areas.

### Strategic Analysis
Intel’s strategy appears to focus on regaining technological parity with competitors through aggressive node development and expansion into foundry services. However, substantial challenges remain, particularly around execution risks associated with rapid technological advancements and the shift in market dynamics towards AI accelerators, where competitors have a more established presence.

### Fair Value Estimate for January 2026
Considering the competitive landscape, Intel’s strategic plans, and financial forecasts, a fair value estimate for Intel in January 2026 can be approached by examining expected financial metrics and growth trajectories. Assuming Intel manages to stabilize its foundry business and sees gradual improvements in AI and other high-growth areas, we can project a modest growth in its financials.

Using a discounted cash flow (DCF) analysis, factoring in the expected revenue growth and margin improvements, and assuming a discount rate reflective of the high uncertainty and execution risks, a fair value estimate for Intel by January 2026 could be around $50 per share. This estimate assumes that Intel successfully executes its strategy without significant setbacks and begins to reap the benefits of its investments in foundry and AI technologies.

Summary

Intel is at a critical juncture, facing significant execution challenges but also possessing substantial opportunities in high-growth areas. Investors should closely monitor Intel’s progress on its strategic initiatives and its ability to respond to competitive pressures.

And here are his notes on the Conference Call:  

 🤖  The Intel Q1 2024 earnings call, led by CEO Patrick Gelsinger and CFO David Zinsner, provided a comprehensive update on the company’s financial health and strategic direction, including insights into market trends, technological advancements, and future expectations. Here’s a detailed summary along with key quotes that could be insightful for investors:

### Key Financial Highlights:
– **Q1 Revenue**: Reported at $12.7 billion, aligning with guidance and reflecting a 9% year-over-year increase.
– **EPS**: Above guidance, demonstrating effective cost control and operational leverage.
– **Gross Margin**: Reported at 45.1%, showing improvement and beating guidance.

### Strategic Initiatives and Outlook:
– **Intel Foundry Services (IFS)**: Significant emphasis on the growth of IFS, with expectations to turn IFS into a key player in the foundry market by 2030. Intel highlighted new customer acquisitions and the strategic importance of securing a U.S.-based supply chain for semiconductor manufacturing.
  
 **Quote**: “We hosted our first-ever Intel Foundry Direct Connect…we announced our position as the national semiconductor champion…this signals significant federal support and aligns with our strategic direction to strengthen our foundry capabilities.” – Patrick Gelsinger

– **Product Roadmap**: Intel is focused on advancing its AI and server capabilities, with specific mention of the next-generation Gaudi 3 accelerator and improvements in AI PC market offerings. The company sees AI integration as a major growth driver and differentiator.
  
 **Quote**: “Within client, we are defining and leading the AI PC category…we expect significant growth from our Gaudi products in the AI space.” – Patrick Gelsinger

– **Market and Financial Outlook**: Intel expects continued revenue growth into 2025, supported by enterprise and data center recovery, and AI market expansion. The company remains cautious but optimistic about overcoming current supply chain constraints and market volatility.

 **Quote**: “We continue to see Q1 as the bottom…expect sequential revenue growth to strengthen throughout the year and into 2025.” – Patrick Gelsinger

### Investor Concerns and Management Responses:
– **Supply Constraints**: Intel acknowledged ongoing supply constraints but expressed confidence in resolving these issues to meet rising demand, particularly in AI PCs.
  
 **Quote**: “We are racing to catch-up to upside requests… constrained by wafer-level assembly supply, impacting our ability to meet demand for our Core Ultra-based AI PCs.” – Patrick Gelsinger

– **Competitive Landscape**: In response to questions about competition and market share, especially from AMD and in the face of rising ARM adoption, Gelsinger emphasized Intel’s technological advancements and roadmap execution as key to maintaining and growing Intel’s market share.

 **Quote**: “We have rebuilt our Grovian culture and execution engine and are on track to completing our five nodes four year goal…in so doing, we are in a unique position with at-scale EUV technology.” – Patrick Gelsinger

Overall, the call highlighted Intel’s strategic focus on leveraging its manufacturing and technological capabilities to capitalize on emerging market trends, particularly in AI. Despite the challenges, Intel’s leadership expressed a strong belief in the company’s strategic direction and its potential to drive significant growth and innovation in the coming years.

They do have $24Bn in debt but also $25Bn in the bank but the current Debt/Earnings is very painful-looking and that’s keeping people away but, as a new play on INTC, I’d go with:

  • Sell 10 2026 $35 puts for $7.20 ($7,200)
  • Buy 25 2026 $25 calls at $9.75 ($24,375)
  • Sell 20 2026 $40 calls for $3.65 ($7,300)
  • Sell 10 July $32 calls for $1.50 ($1,500) – you might have to wait a bit.

That’s net $8,075 on the $37,500 spread with a very reasonable target and we have 6 more quarters to sell for $9,000 so it will be a net free spread by the time we get to the end – how can you not love it? Upside potential at $35 is $29,425 and that’s 364% – even without the additional short call sales.