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Intel Corporation (INTC) is the world's largest chip producer. It designs and manufactures microprocessors for the global personal computer and data center markets. The company has been gradually reducing its dependence on PCs by moving into data-centric businesses such as artificial intelligence and autonomous driving.
Last year, its data-centric businesses made up 48.6% of revenues. This indicates that its data business is generating close to what the PC business does. The growth in its data business is expected to continue and even surpass its PC business in the years ahead. But we can't forget that INTC still holds a dominant market share for microprocessors in the consumer and enterprise markets.
With the future in mind, the company's focus is on the data center and cloud, where management aims to maintain its market share and increase profitability. This has led to investment in the Internet of Things (IoT) and memory and storage.
In terms of chips, INTC is now focusing on a product range that targets different segments of the market. While its higher-end business in developed economies is showing momentum, the company is looking to get into more device categories.
As more information is increasingly stored in the cloud, there is demand for a new breed of chips like Intel provides. These chips are more efficient in terms of cost and energy, and INTC is now offering more integrated solutions that should be competitive on a cost-per-watt basis.
For instance, the firm's investments in field-programmable gate arrays for acceleration and memory to reduce latency and increase speeds are helping it to develop custom solutions for top customers. The acquisitions of Altera and eASIC have also helped strengthen its position in the networking segment.
The Internet of Things market is expected to see strong growth over the next few years, and INTC is in a position of strength due to its focus on supplying not just chips but the associated hardware. INTC generated $3 billion from IoT in 2020, and it continues to introduce new products. The company has also made strategic acquisitions to build out its portfolio and strengthen its position in this segment.
INTC is also benefiting from an improving trend in PC shipments. As the remote working wave doesn't seem to have an end in sight, Intel should benefit from higher demand for its 10 nanometer SuperFin process-based 11th Gen core processors amid continued robust growth in the PC market.
Intel's 2017 acquisition of autonomous vehicle technology provider Mobileye has also been a significant positive for the company. The acquisition helped INTC penetrate the autonomous car technology market. The company has access to Mobileye's technologies, including in-car networking, sensor chips, roadway mapping, machine learning, and data management.
INTC's earnings rose 12.3% year over year in the second quarter, driven by its PC business and a strong recovery in the Internet of Things business and the enterprise portion of the data center segment. Intel also recently announced the creation of Intel Foundry Services. Foundry is a massive opportunity with an estimated $100 billion addressable market by 2025.
The company has an overall grade of A, translating into a Strong Buy rating in our POWR Ratings system. INTC has a Value Grade of A as the stock appears quite undervalued. For instance, INTC has a trailing P/E of only 11.98 and a forward P/E of 12.42. Those are pretty low figures for a chip stock. In addition, if we consider analyst price targets, INTC is undervalued by as much as 56.8%.
The company also has a Quality Grade of B due to a solid balance sheet. As of the end of the most recent quarter, INTC had $24.9 billion in cash compared with only $3.7 billion in short-term debt. We also provide Growth, Momentum, Stability, and Sentiment grades for INTC, which you can find here.
INTC is ranked #8 in the B-rated Semiconductor & Wireless Chip industry. You can find other top stocks in this industry by clicking here.
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INTC shares were trading at $54.16 per share on Tuesday afternoon, up $0.22 (+0.41%). Year-to-date, INTC has gained 11.41%, versus a 21.62% rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. He is the Chief Value Strategist for StockNews.com and the editor of POWR Value newsletter. Prior to StockNews, David spent eleven years as a consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers.
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