To The Moon

$Qualcomm(QCOM)$ has expressed interest in acquiring $Intel(INTC)$ , which could become one of the largest and most influential deals in recent years. But as always, there’s a chance this deal might not go through. So, potential investors need to consider whether Intel is still worth holding as a standalone company.

Based on its latest inventory data, things aren’t looking great. Inventory levels often signal where we are in the business cycle. For cyclical companies, rising inventory can be a warning sign that they’re producing too much despite weakening demand. On the flip side, shrinking inventory signals strong demand.

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Intel's balance sheet shows a troubling trend. Back in December 2014, the company had $4.27 billion in inventory. Now, that number has jumped to $11.24 billion.

While growing inventory can sometimes signal a company expanding its capacity to meet rising demand (which was the case for Intel during the first half of the past decade), it’s worrisome if inventory grows faster than the business itself. That’s the situation Intel finds itself in today.

Inventory Days: Intel vs. NVIDIA

Let’s compare Days Inventory Outstanding (DIO) for Intel and $NVIDIA Corp(NVDA)$ over the past five years. This metric measures how long it takes for a company to turn its inventory into sales.

Intel’s DIO hit a peak of over 150 days in 2023, and while they’ve managed to bring it down to 125 days, that’s still higher than their historical average of 114 days. In contrast, NVIDIA’s DIO also spiked in 2023, reaching over 200 days, but they rapidly brought it down to 76 days, significantly below their four-year average of 97.9 days and close to their lowest level in at least four years.

This contrast highlights the competitive pressure Intel faces, especially as rivals like NVIDIA and AMD ramp up production of next-gen chips, like NVIDIA’s Blackwell.

What Does This Mean for Intel?

With Intel’s rising inventory and weakened competitive position, it’s tough to justify its current valuation multiples.

Beyond the inventory and valuation concerns, Intel faces specific risks tied to its current product lineup. The company has significant exposure to certain segments, like PCs, that are potentially nearing market saturation. These factors could limit Intel’s ability to adapt to technological advancements and the shifting geopolitical landscape.

Qualcomm’s acquisition interest is an exciting new upside catalyst. But based on the latest inventory data, Intel’s standalone outlook looks rather bleak.