Since hitting a 52-week low on Oct. 13, 2022, Intel's (INTC, Financial) share price remains on a rising trajectory, which is surprising given that the chipmaker released negative earnings results at the end of October that showed a sharp decline in the company's revenue and profitability.
It's arguable that during the past few years, the rivalry between the two major CPU powerhouses, Intel and Advanced Micro Devices (AMD, Financial), has increased in intensity. After significantly lagging behind its primary rival in the early and mid-2010s, AMD has unquestionably made a stunning recovery, and a new all-time market share record now honors this heroic effort.
The fact that AMD has been eroding Intel's lead in the x86 CPU market is no news, but Intel somewhat flipped the script last quarter. According to Mercury Research, Intel's market share of desktop and notebook processors grew in the third quarter of 2022. More specifically, Intel increased its market shares for desktop and notebook CPUs by 3.1% and 6.3%, respectively, in the third quarter compared to the same quarter the previous year.
Source: Statista.com
It is not surprising that Intel stopped AMD's growth in the client CPU market. However, according to reports, 13th-generation Raptor Lake processors from Intel exceed AMD's options in crucial categories like cost, gaming performance, content production, specifications and value for money.
This was accomplished even though Intel's processors are constructed using chips that use their 10nm Intel 7 process. On the other hand, AMD's most recent Ryzen 7000 CPUs use 5nm circuits. Since they pack transistors closer together, more minor process node chips should perform better due to increased computational power and reduced power usage. However, Intel used its most recent design to find a substitute.
Sector cyclicality
The semiconductor sector is known for its high cyclicality, meaning that demand for semiconductors tends to rise and fall with the economy's overall health. Consumer spending, business investment and global trade can impact semiconductors demand. This cyclicality can lead to volatile stock prices for companies in the sector, but it can also present opportunities for investors who can correctly anticipate market trends.
Additionally, the sector is highly dependent on technological advancements and new product launches, which can lead to volatility. It's also important to note that macroeconomic and geopolitical developments and technological progress heavily influence the sector. Unfavorably, the figure below predicts a downturn or significant slowdown in the semiconductor industry in 2023 or 2024.
Notably, a sector slowdown is expected whenever CapEx increases significantly. Unsurprisingly, the uncertain future and low expectations have already affected the stock values of semiconductor companies. To reclaim its position as the market leader in semiconductors and also return to the fabrication business (i.e. manufacturing chips for other companies), Intel announced last year that it would invest $20 billion in constructing two new chip manufacturing facilities in the U.S. and up to $90 billion in new European factories.
However, Taiwan Semiconductor Manufacturing Company's (TSM, Financial) CEO CC Wei stated during an earnings call on Thursday that he anticipated 2023 to be a "slight growth year" following the normalization of customer chip inventories in the year's second half. Thus, despite its strong earnings, Taiwan Semiconductor warned against a cautious outlook, implying that the sector's headwinds are not over yet and could affect Intel's performance in the first half of 2023.
Source: Semiwiki.com
Sapphire Rapids
The fourth-generation Intel Xeon Scalable processor, codenamed Sapphire Rapids and the replacement for Ice Lake, has finally been released by Intel after several delays. According to Intel, using the new accelerators, the platform offers a 1.53x average performance gain over the prior generation and a 2.9x average performance per watt efficiency improvement for targeted workloads. It is manufactured on the Intel 7 node and features up to 60 Golden Cove cores per processor and new dedicated accelerator cores.
Intel 4 remains a growth catalyst
Finally, Meteor Lake, Intel's forthcoming 14th-generation architecture, may debut in the fourth quarter of 2023. The 7nm fabrication, Intel 4, will be the company's first using EUV technology. Intel 4 will be impressive by achieving 2x more density than Intel 7, a 21.5% performance boost and 40% lower power consumption. It is anticipated to provide and mark the beginning of Intel's attempt to close the technological gap between itself, Samsung (XKRX:005930, Financial) and Taiwan Semiconductor.
Source: Intel Presentation
Valuation remains attractive
The stock price of Intel has plunged in the last three months and has approached its book value of $24.20 due to ongoing chip supply shortages, recession fears and waning demand for consumer and data center products. However, Intel remains undervalued from most traditional fundamental metrics compared to its peers, and considering its low price-earnings ratio of around 9, I believe the headwinds are already priced in.
Conclusion
The release of Intel 4 Meteor Lake CPUs remains a growth catalyst for Intel's trajectory in 2023. However, despite its encouraging performance and growth plans, Intel must more top- and bottom-line beats in the future for it to regain the confidence of investors.
The chip titan remains on track to deliver on its promises, as it is wisely utilizing its large cash reserves to retake the technological lead in chip production. As a result, investors willing to wait for the business to regain market leadership in semiconductors in the next three to five years could be rewarded, and the dividend yield of 4.8% is a nice bonus.
