The Sleeping Giant Awakens: Intel’s AI Push Signals a Comeback

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Intel (NASDAQ:INTC) is continuing to rapidly develop products that will enable it to benefit more significantly from the AI boom. Its semiconductor-manufacturing business also looks poised to boost Intel stock over the longer term.

Meanwhile, the chip maker is likely to benefit from the rebound of the PC market in general this year and the launch of many AI PCs in particular in the second half of the year. What’s more, given the company’s positive outlook, its valuation is quite low. In light of all of these points, I continue to recommend that long-term investors buy Intel’s shares.

The Continued Development of Intel’s AI Business

On June 4, Intel launched updated processors and AI chips. Specifically, the company noted that it was introducing new, faster, less power-intensive Xeon server processors. These new processors are up to 4.2 times faster and 2.6 times less power-intensive than their predecessors. Intel also reported that its Gaudi 3 accelerator chips, featuring eight of the Gaudi 3 AI chips, would sell for about two-thirds of the cost of competing products.

And on June 26, the firm disclosed “the chip industry’s first fully integrated optical compute interconnect chiplet.” According to Intel, the chiplet will enable machine learning and the creation of AI to progress more quickly by implementing higher bandwidth and reach compared with competing products. Additionally, the chiplet uses two-thirds less power than competing offerings.

These updates should cumulatively significantly raise the amount of revenue and profits that Intel obtains from data centers and major companies that are implementing AI on a wide scale.

And according to Techzine, Intel’s Gaudi 3 AI chips themselves appear to be “the main alternative to Nvidia for completing AI workloads as quickly as possible.” Indeed, Intel has already announced an impressive rosters of firms that have agreed to buy Gaudi 3, including IBM (NYSE:IBM), NielsenIQ, German conglomerate Bosch and Bharti Airtel, a major Indian telecom company.

Also importantly, Intel is spearheading a consortium of heavy hitters that are developing open-source software which can interface with all AI chips. Such software would eliminate Nvidia’s (NASDAQ:NVDA) biggest competitive advantage: its software, which enables its chips to be easily managed simultaneously. Intel’s consortium also includes Arm (NASDAQ:ARM), Alphabet (NASDAQ:GOOG, GOOGL), and Broadcom (NASDAQ:AVGO). It expects to unveil a finished product by the end of this year.

Continued Progress on the Foundry Front

On June 18, Forbes columnists Francis Sideco and Tirias Research reported that “Intel appears to be achieving its goal of becoming a leading semiconductor” manufacturer. They noted the tech giant had begun significant production of its new, smaller 3 nanometer chips for both its own use and for other firms.

Importantly, the new manufacturing process can support “high-performance AI and compute applications” while “delivering up to an 18% improvement in performance per watt, lower leakage and enhanced reliability.” Also noteworthy at a time when the auto sector’s advanced driver assistance systems are becoming much more advanced and chip-intensive, is that Intel will be able to make semiconductors for the sector, according to the columnists.

A Boost From Higher PC Sales

In the first quarter, global shipments of desktop and notebook computers increased by a cumulative 3.2%, research firm Canalys reported. More critically, the firm expects the sector’s growth to accelerate throughout 2024. And echoing Intel CEO Pat Gelsinger, the firm predicts that the advent of AI PCs in the second half of this year will lift the sector, giving consumers an impetus to buy new devices. Intel, which makes chips for most prominent PC makers, is likely to benefit meaningfully from these trends in the second half of the year.

Valuation and the Bottom Line

Intel is changing hands at a forward price-to-earnings ratio of 28.5 times. I believe that this relatively low valuation meaningfully undervalues the company’s tremendous, longer-term positive catalysts.

On the date of publication, Larry Ramer held a long position in INTC. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.    

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been SMCI, INTC, and MGM. You can reach him on Stocktwits at @larryramer.

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