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Home Top Trades Top Trade Alert – June 6, 2024 – CSCO and INTC

Top Trade Alert – June 6, 2024 – CSCO and INTC

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Top Trade Alert – June 6, 2024 – CSCO and INTC

It’s been a while since we added to the Butterfly Portfolio and I’m liking CSCO down here at $46.25 as that’s 13x earnings and they JUST guided 5-7% growth through 2027 (Is Cisco Stock A Buy With Revenue Growth Guidance Of 4% To 6%?) and that’s not great but just what we want in the Butterfly Portfolio as we have a nice floor at $40 and it’s not likely they are going to take off on us either BUT, they are nice and volatile between $45 and $55 – so good opportunities for short-term premium sales.

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So, for the Butterfly Portfolio, let’s:

    • Sell 10 CSCO 2026 $45 puts for $4 ($4,000)
    • Buy 20 CSCO 2026 $40 calls for $9.50 ($19,000)
    • Sell 15 CSCO 2026 $50 calls for $4 ($6,000)
    • Sell 5 CSCO Sept $47.50 calls for $1.50 ($750)
    • Sell 5 CSCO Sept $45 puts for $1.35 ($675)

So we have a net $7,575 entry on the $20,000 spread so there’s $12,425 (164%) upside potential at $50 and the short calls are fully covered. We can’t lose on both sides so we’ll roll the losers in Sept and that leaves us with 5 more chances to collect $1,400, which is 20% per quarter while we wait for our 164% – not bad!

I know we just did INTC a couple of months ago but it’s still cheap so I still like them.  

 We look for opportunities like, this morning, Intel (INTC) has just laid out their strategy for AI chips at Computex and I was impressed and Boaty (our AGI assistant) was impressed too: 

Based on the recent announcements from Intel at Computex 2024 and other sources, here is an analysis of Intel’s competitive positioning against Nvidia and the potential impact on Intel’s stock valuation for January 2025 and 2026:

Key Intel Announcements at Computex 2024

– Unveiled the Xeon 6 server chips with E-cores, offering higher core counts, density, performance per watt, and a smaller footprint compared to the previous generation. This allows data centers to consolidate and save energy and rack space.[11][12]

– Officially launched the Gaudi 3 AI accelerator chip, claiming it is over 2x more power-efficient and can run AI models 1.5x faster than Nvidia’s H100 GPU. Gaudi 3 is priced at 2/3 the cost of comparable Nvidia offerings.[9][11]

– Revealed details of the AI-focused Lunar Lake PC chip, featuring a new CPU architecture, enhanced Xe2 GPU, and an NPU with 48 TOPS. Intel expects to ship over 40 million Core Ultra processors with Lunar Lake this year.[11][13]

Competitive Positioning vs Nvidia

Intel is directly challenging Nvidia’s dominance in AI chips with its Xeon, Gaudi and Lunar Lake offerings:[5][7]

– In the data center/cloud market, Gaudi 3 takes aim at Nvidia’s GPUs with claims of higher performance and power efficiency at a lower price point. However, Nvidia still holds an estimated 80-95% market share and has an entrenched software ecosystem (CUDA).

– For edge computing and PCs, Intel is focusing on its “AI everywhere” strategy with Lunar Lake. Getting AI capabilities into a large volume of PCs could help offset Nvidia’s data center lead. But Nvidia is also targeting edge AI with its Grace and Orin SoCs.

– Intel is embracing an open software approach to counter Nvidia’s proprietary CUDA. It is working with Google, Qualcomm and others on open AI software stacks as an alternative.

While Intel is making aggressive moves, most analysts expect Nvidia to maintain its overall AI chip leadership in the near-term given its scale, software, and first-mover advantage. But Intel has the opportunity to gain incremental share.

Stock Valuation Outlook

Forecasts for Intel’s stock price in Jan 2025 and 2026 vary, reflecting the uncertainty around its AI positioning:

– Bullish predictions range from $45-57 for Jan 2025 and $56-60 for Jan 2026, based on expectations for Intel’s AI products gaining traction.[1][4][10]

– Bearish forecasts put Intel’s stock at $18-26 for Jan 2025 and $50-56 for Jan 2026, citing Nvidia’s entrenched lead and execution concerns.[2][3][8]

My view is that Intel’s Computex announcements demonstrate its intense focus on the AI opportunity and willingness to compete aggressively on price/performance. While unlikely to unseat Nvidia’s dominance in the next 1-2 years, Intel’s Xeon, Gaudi and Lunar Lake products should drive incremental growth and market share gains.

I believe Intel’s stock has upside from the current $30 level, but I would lean more conservative than the most bullish predictions. A reasonable range could be $40-50 for Jan 2025 and $50-60 for Jan 2026 if Intel executes well on its AI roadmap. However, any stumbles could limit the stock’s appreciation.

In summary, Intel is positioning itself as a more formidable competitor to Nvidia in AI chips, but it still has work to do to prove it can gain significant share. Its Computex announcements are a positive step, but execution will be key to driving sustained growth in its stock price in 2025-2026 and beyond.

Citations:
[1] https://30rates.com/intc-stock
[2] https://longforecast.com/intc-stock
[3] https://www.litefinance.org/blog/analysts-opinions/intel-stock-forecast-and-price-prediction/
[4] https://coinpriceforecast.com/intc-stock
[5] https://www.cnbc.com/2024/06/02/nvidia-dominates-the-ai-chip-market-but-theres-rising-competition-.html
[6] https://www.fool.com/investing/2024/05/18/better-ai-stock-intel-vs-nvidia/
[7] https://www.computerworld.com/article/2138358/can-intels-new-chips-compete-with-nvidia-in-the-ai-universe.html
[8] https://www.fool.com/investing/2024/03/25/where-will-intel-stock-be-in-2025/
[9] https://www.cnbc.com/2024/04/09/intel-unveils-gaudi-3-ai-chip-as-nvidia-competition-heats-up-.html
[10] https://finance.yahoo.com/news/where-intel-stock-2025-103000670.html
[11] https://www.intc.com/news-events/press-releases/detail/1697/intel-accelerates-ai-everywhere-at-computex-2024-redefines
[12] https://seekingalpha.com/article/4697383-intel-corporation-intc-computex-2024-keynote-transcript
[13] https://seekingalpha.com/article/4697371-computex-chronicles-part-5-intel-strikes-back

INTC has been beaten up because they have been investing in new Fabs (Fabrication Plants) to make the next-generation 20-angrstrom chips and yes, that’s a massively expensive project but it’s also a moat that prevents other companies from competing for years to come.

INTC started building these Fabs pre-AI and the chips are not optimized for AI but they will be tweaked (as this is not the first time market demands have shifted) and INTC has already moved to enable themselves to compete with NVDA’s offerings and yes, I agree with Boaty – they are not likely to unseat NVDA but ANY seat at that $3Tn table (NVDA’s insane market cap) is going to be a big positive for $127Bn INTC, right?  

INTC has $60Bn in sales and makes $6Bn so 21x with $24Bn in debt and the Government throwing money at them (also to NVDA).  NVDA has $120Bn in sales and makes $67Bn (60% net profit margins!) but that’s still 44x projected revenues but NVDA has no debt and $21Bn in net CASH!!!

Finviz Chart

NVDA benefits from being in the right place at the right time with the right chip to sell and they’ve pressed that advantage to charge outrageous prices for their chips. INTC will make MUCH MORE than they usually do selling chips for 2/3 the price of NVDA and things will even out over time as more supply comes on-line and that will be bad for NVDA but not so much for INTC, who are priced to make 10% margins. 

So the value is there and the next component to swing trading is timing and I think yesterday’s announcements will bring the analysts around – like this:  

You get the idea. Of course Boaty and I have already read all that and that’s why we’re discussing INTC today. We just got more aggressive in our Income Portfolio on the 16th, when I said:  

INTC – Things were going so well and then they started spending money again! Earnings were a beat so F the haters but shame on us for not selling more short calls.  Our $35 calls are $5.78 and the $30s are $8 and the $25s are $10.70 so I’m for spending $24,600 to roll down $10 and buy $50,000 worth of position as we certainly intend to own INTC forever. If they fail here ($32) then we’ll sell some calls but, if not, we should be able to sell Sept $35s (now $1.70) for $4 (the price of the $30s) on a move higher so let’s plan on selling 20 of those for $8,000 when we can. 

And, in the LTP, it was:  

INTC – Doing very well and let’s buy back those short 2026 $45 calls as they are already up 73.5% with less than $1,000/month left to gain so I don’t feel it’s very risky to see if INTC can keep going to $35 before we sell more short calls.

As a new long-term trade on INTC I would go for:  

    • Sell 20 INTC 2026 $35 puts for $7.85 ($15,700) 
    • Buy 50 INTC 2026 $20 calls for $12.75 ($63,750) 
    • Sell 40 INTC 2026 $35 calls for $4.70 ($18,800) 

That’s net $29,250 on the $75,000 spread which is $50,000 in the money to start and we have $45,750 (156%) of upside potential, which is nice and, as INTC gets back over $35, we can begin selling calls like the Sept $35s, which are now 0.95 for the price of the $30s, which are now $2.65 so let’s say we collect $2,650 using 107 out of 590 days so 5 sales like that pays us back $13,250 or almost half of our outlay if all goes well.  

 

For our Swing Trade Portfolio, earnings are late July but let’s give them more than one quarter: 

    • Sell 5 INTC Oct $30 puts for $2.40 ($1,200) 
    • Buy 10 INTC Oct $25 calls for $6.50 ($6,500) 
    • Sell 10 INTC Oct $30 calls for $3.50 ($3,500) 

That’s net $1,800 on the $5,000 spread and uses about $3,000 worth of margin for 4 months. If all goes well, we have $3,200 of upside potential and that’s a nice first trade for our new portfolio.