To The Moon

Entrance of The Intel Museum in Silicon Valley.

JHVEPhoto

Thesis

Intel (NASDAQ:INTC) creates tech components and platforms for computing and communications industries. They are undergoing a shift from a stable dividend stock, causing large volatility in the stock price downward. With hardware cooling off from the pandemic and people preparing for a recession, Intel's revenue showed big declines and reduced guidance. However the main focus under the new leadership of Pat Gelsinger (CEO) is to make Intel the global foundry leader in chip manufacturing (majority of chips being made by Intel's operations). This has led to a higher risk environment for the stock and investors are diligently following Intel's actions as the chip industry has proven to be essential for our future development including A.I. With a high projected CAGR for chips and the geopolitical tension surrounding Taiwan Semiconductors (their main competitor), Intel could be an interesting value proposition that has the infrastructure and assets to create a large moat in the chip industry.

Industry overview

The global semiconductor market is worth $573 billion and is expected to grow to $1.4 trillion by 2029, which is a 12% CAGR. Intel is the 2nd largest in market share at 9.7% which is behind Samsung's 10.9% market share. With the growth of A.I. technology and its necessity for increased processing power, coupled with the growing EV sector with smart cars, semiconductor companies like Intel will be seeing large work orders coming their way for the foreseeable future.

Projections for semiconductor market

Semiconductor Market Size Forecasts (Precedence Research)

distribution of semicondcutor market share globally

Global Semiconductor Market Share (Counterpoint Research)

graph depicting Intel 3 year stock price performance compared to competitors

Intel Price Performance (Morningstar )

Competitive advantage

Intel has the infrastructure to dominate large-scale production.

Intel is one of the longest standing competitors in the space, controls virtually the whole US market for chips, and the new CEO understands that they need to refocus on an area that they can dominate which is at-scale manufacturing for the future. While Intel has been on a steady decline, Nvidia (NVDA) and Advanced Micro Devices (AMD) have taken the spotlight and have outperformed Intel when it comes to hardware capabilities. Nvidia and AMD have proven that as the smaller company, they have Intel beat when it comes to technology at this moment. Pat Gelsinger recognizes that Intel has gone away from its roots and he is reenergizing the behemoth towards its advantage of built out infrastructure capabilities. Since entering in 2021, Gelsinger has created additional sites in Ohio (2 factories), Arizona, and Germany, with plans for EU expansion in France, Ireland, Italy, Poland, Spain to meet their ambitious goal of 5 new technology nodes in 4 years. He also worked to pass the US Chips and Science act which subsidizes $52 billion towards chip manufacturing in the US, where Intel holds the majority market share. The last unique aspect of Intel is the diversification of its segments. Not only do you get a hardware business but also a growing cloud solutions provider, chip producer for A.I. developments, and the self-driving potential of the Mobileye division. With cloud-solutions and self-driving cars becoming more advanced, it is a natural assumption that A.I. will be used to better and potentially perfect an ever-learning products for consumers. This would leave Intel in a spot to double or even triple dip on artificial intelligence development as they become more of a reality for consumers.

Risks

If Intel's large manufacturing investments in Arizona, Ohio, EU Expansion in Germany, France, Ireland, don't pan out, the large levels of debt on the balance sheet will weigh on their cash flow and ultimately the shareholders. Currently being cash flow negative due to capital expenditures to build factories in Arizona, Ohio, and Germany, shows that these are major shifts and investments in the business which carry inherent risk for investors. They have offset some of this risk by having advance partnerships from foundry clients to share some costs to guarantee manufacturing space and with investment firms splitting startup costs to leverage Intel's market positioning in semiconductors.

If consumer/client demand is not there for all of the capacity they invested in, it will leave them with commercial spaces that will not be in use. If they miss on their technology node milestones, they could stand to lose ground to other foundry competitors as they would not be able to supply quality hardware manufacturing at-scale. Lastly, there is the risk that they run out of money before completing their transformation. This scenario seems unlikely with the large scale of Intel's business, current debt levels (~66% of their debt can be paid with their cash, cash equivalents, and short term investments), and the large subsidized support from the US government but something to consider as they will be cutting costs for the next few years to support the business.

Drone footage showing Intel Factory Production Progress

Intel Factory Production Progress (Intel Newsroom)

Conclusion

Intel is in a transition period and their numbers and profitability are down. This will probably continue to be the case until 2025 when major milestones are hit in their technology development and infrastructure. With the goal of becoming the premier manufacturer at-scale for semiconductors, Intel is in a great market that it should be able to capitalize on, with the big if being if their leadership will be able to navigate the transition smoothly. The road ahead is rocky for Intel but with the necessity of chip manufacturing only growing, IDM 2.0 could put Intel in position to overtake Samsung as the #1 manufacturer in the world. Be on the lookout for major government support, partnerships, and when Intel becomes cash flow positive. These catalysts will allow us to get a better picture of what role Intel will play in our future and allow us to better understand its fair value. $Intel(INTC)$ $NVIDIA Corp(NVDA)$ $Advanced Micro Devices(AMD)$

SOURCE: SEEKINGVIEW