About a week-and-a-half ago, the Wall Street Journal reported that tech giants Broadcom (NASDAQ:AVGO) and Taiwan Semiconductor Manufacturing (NYSE:TSM) were interested in acquiring certain business segments of Intel (NASDAQ:INTC): the former enterprise had eyes on Intel’s chip-design business while TSMC was looking at the company’s factories. It was a rare bit of positive news for INTC stock, accentuating an earlier rally.
However, it’s also fair to point out that Intel had suffered a long series of miscues, oversights and unforced errors. What was once a proud leader in the ultra-competitive semiconductor ecosystem had become relegated almost to a bystander’s role as other enterprises gained market share. Therefore, with INTC stock moving up almost 20% in the trailing month, many investors are skeptical that the good times can continue.
Undoubtedly, Intel is a risky play. However, it wouldn’t be out of the question for INTC stock to march higher. In the scenario where no deal materializes, Intel could potentially see upside under the right conditions. For example, if the company’s foundry business gains traction, it could potentially challenge TSMC and Samsung, thus putting the heat back on its rivals.
It should also be noted that INTC stock trades at a relative discount to its close semiconductor peers. To be sure, growth is projected to be anemic, with analysts anticipating fiscal 2025 sales to reach only $53.54 billion, up less than 1% from the prior year. Still, an outperformance could yield significant investor interest.
Right now, INTC stock trades for less than 2X trailing-12-month (TTM) sales. That’s unheard of when you consider Advanced Micro Devices (NASDAQ:AMD) at nearly 7X and Nvidia (NASDAQ:NVDA) at almost 29X.
No, I’m not drawing apples-to-apples comparisons here — let’s not go crazy. However, there might be a case where investors may be expected too little out of Intel. That might not be right either.
Another factor to consider is the scenario where Intel inks a deal with Broadcom and TSMC. In that case, the enterprise should receive an immediate cash infusion which should strengthen its balance sheet. Further, the sale of non-core or underperforming assets would allow Intel to redeploy capital to where it is most effective. In turn, the strategic pivot could attract investors, thus bolstering INTC stock.
In particular, Intel offloading its struggling manufacturing business to TSMC could be a mutually beneficial arrangement. Manufacturing of course is extremely capital-intensive. Intel has spent billions trying to play catchup but it still lags in the sector. Jettisoning this business would allow Intel to operate as a fabless chip designer, much like AMD.
On the other end, TSMC is already optimized for high-volume, cutting-edge semiconductor production. Plus, it’s more efficient at advanced node scaling — an area which Intel has suffered repeated delays.
To be completely upfront, investors should realize that INTC stock suffers from a downward bias. Using data since January 2019, a position entered at the beginning of the week has a 53.58% chance of rising by the end of it. Over an eight-week period, this baseline probability slips to 46.5%.
Under dynamic conditions, behavioral patterns can shift forward or backward. However, it’s mostly just noise. If you’re looking to invest in INTC stock, you may consider small nibbles in the open market, especially during downcycles. So far, support appears to be holding strong at $20 and I don’t expect a cratering below this point, especially because the company is still relevant.
