Johnjohnn
2021-08-24
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Intel Has 3 Big Advantages Over Nvidia And AMD
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{"i18n":{"language":"zh_CN"},"detailType":1,"isChannel":false,"data":{"magic":2,"id":834611536,"tweetId":"834611536","gmtCreate":1629796191725,"gmtModify":1631890206890,"author":{"id":3576491127300046,"idStr":"3576491127300046","authorId":3576491127300046,"authorIdStr":"3576491127300046","name":"Johnjohnn","avatar":"https://static.tigerbbs.com/4915eff6e74b30b32df99de166e08340","vip":1,"userType":1,"introduction":"","boolIsFan":false,"boolIsHead":false,"crmLevel":6,"crmLevelSwitch":0,"individualDisplayBadges":[],"fanSize":3,"starInvestorFlag":false},"themes":[],"images":[],"coverImages":[],"extraTitle":"","html":"<html><head></head><body><p>How true is this?</p></body></html>","htmlText":"<html><head></head><body><p>How true is this?</p></body></html>","text":"How true is this?","highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"favoriteSize":0,"link":"https://laohu8.com/post/834611536","repostId":1170452539,"repostType":4,"repost":{"id":"1170452539","kind":"news","pubTimestamp":1629794615,"share":"https://ttm.financial/m/news/1170452539?lang=&edition=full","pubTime":"2021-08-24 16:43","market":"us","language":"en","title":"Intel Has 3 Big Advantages Over Nvidia And AMD","url":"https://stock-news.laohu8.com/highlight/detail?id=1170452539","media":"seekingalpha","summary":"Summary\n\nIntel has three big advantages over AMD & Nvidia - Western Fabs, Scale, and Free Cash Flow ","content":"<p><b>Summary</b></p>\n<ul>\n <li>Intel has three big advantages over AMD & Nvidia - Western Fabs, Scale, and Free Cash Flow Optionality.</li>\n <li>Intel's stock is worth $93.21, i.e., it is undervalued by ~45%. Due to limited downside risk and double-digit expected returns, Intel's stock is a good investment for DGI investors.</li>\n <li>I rate Intel a buy at $52 for dividend growth investors.</li>\n</ul>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/d0461514230769eb3653c592b9e4eb86\" tg-width=\"1536\" tg-height=\"1024\" referrerpolicy=\"no-referrer\"><span>JHVEPhoto/iStock Editorial via Getty Images</span></p>\n<p><b>Introduction</b></p>\n<p>In recent years, Intel(NASDAQ:INTC) has fallen behind Nvidia(NASDAQ:NVDA) and AMD(NASDAQ:AMD) from a technological standpoint (resulting in market share losses) due to its well-established manufacturing process woes. Now, Intel continues to rake in record amounts of annual revenues [~$75B (and produces massive amounts of free cash flow)]; however, revenue growth is disappearing along with long-term customers such as Apple(NASDAQ:AAPL)[Chips for Macs are now designed in-house]. Intel is facing increased competition in all of its markets (CPUs, GPUs, IPUs, data centers, and others) from rivals who are growing aggressively and taking market share away from Intel.</p>\n<p>Under the leadership of its new CEO,Pat Gelsinger, Intel is looking to move in a new direction with its \"IDM 2.0 strategy\". Last week, Intel presentedmultiple new architecturesthat will be powering its future product lineup that Intel had previously showcased while announcing the IDM 2.0 strategy. Since taking over at Intel, Gelsinger has quickly moved to change the mood and narrative around the company, andArchitecture Day 2021was another positive event.</p>\n<p>Having an engineer at the helm of Intel was critical due to repetitive failures from previous management. Gelsinger, who previously served as the first CTO of Intel, has been quick to acknowledge Intel's failures, and although his vision is for Intel to remain a semiconductor manufacturer (even turn into a foundry service), he is nimble enough to outsource advanced technology manufacturing to foundry rivals. During the presentation last week, Intel announced a larger partnership with TSMC(NYSE:TSM), which will see Intel's Alchemist family of discrete GPUs built on TSMC's 6nm technology. Now, according to Gelsinger, Intel could regain manufacturing process leadership in 2025. However, in the meantime, Intel's new mixed-sourcing strategy will allow the company to deliver market-leading products that can compete effectively with its rivals [AMD and Nvidia] right away. Thereby stemming market share losses & potentially winning some of it back [in CPUs and data center markets] while establishing a sizeable market share in other markets [viz. GPUs, IPUs, etc]. At the moment, the demand for semiconductor chips is through the roof, and so, Intel's IDM 2.0 strategy stands a good chance of working out well.</p>\n<p>Despite the market narrative around the company, Intel is selling everything it is able to produce at the moment. Due to a massive chip shortage, the demand-supply balance in the semiconductor industry is heavily skewed towards demand, and this equation is unlikely to be rebalanced until 2023. And so, Intel's near-term future is more than secure. The outcome of Intel's \"IDM 2.0 strategy\" will be apparent within the next couple of years, and we will see if Intel can return to faster revenue growth numbers under Gelsinger's leadership. If Intel manages to do that, the stock could get re-rated to a (much) higher trading multiple.</p>\n<p>In the past,I have liked the idea of a fabless Intel; however, Intel's manufacturing capabilities are critical to U.S. national security and supply chain resilience. The uncertain China-Taiwan situation represents heightened geopolitical risks for the global semiconductor industry. Therefore, I support Intel's ambitious foundry plans despite the unending manufacturing process challenges (maybe Pat is the guy to solve it).</p>\n<p>Today, Intel is not a market darling anymore. When it comes to the semiconductor sector, most investors prefer to invest in Intel's fast-growing rivals, such as Nvidia or AMD (and it's been that way for quite some time). Intel's current valuation of $212B (~2.75x P/S) in this market environment is ridiculously cheap. The market is pricing Intel for failure. However, in my opinion, Intel holds at least three big advantages over its major competitors:</p>\n<ul>\n <li>Western Fabs</li>\n <li>Scale</li>\n <li>Free Cash Flow Optionality</li>\n</ul>\n<p>The above-mentioned advantages will likely allow Intel to survive and thrive over the next decade and beyond. Before we determine Intel's valuation to formulate an investment decision, let's discuss each of these advantages in more detail.</p>\n<p><b>Intel's Big Advantages Over AMD & Nvidia1. Western Fabs</b></p>\n<p>In recent times, the semiconductor supply chains have faced severe shortages leading to massive loss of sales across various end industries (e.g., auto industry, etc.). The coronavirus pandemic exposed the concentration risk in our global supply chains, and global organizations are in dire need of (more geographically) balanced semiconductor supply chains.</p>\n<p>Intel's major competitors Nvidia and AMD are fabless semiconductor companies, i.e., they design their chips in-house and get them manufactured at foundries such as Taiwan's TSMC and South Korea's Samsung(OTC:SSNLF). As you may be aware, TSMC's manufacturing process technology is currently the gold standard in the semiconductor industry. China wants to retake Taiwan (a democratic island situated right off the shore of mainland China) back into its fold. Hence, the current semiconductor supply chain carries massive geopolitical risks.</p>\n<p>As of Q2 2021, Intel owns property, plant, and equipment worth ~$58B [largest manufacturing assets among semiconductor manufacturers], and these fabs are located in the Western hemisphere. Intel is probably the only company that can serve as a western alternative to TSMC and Samsung. Therefore, Intel's western fabs are likely to emerge a big advantage over rivals AMD and Nvidia as global organizations look at diversifying their supply chains. Intel recently reported that Amazon(NASDAQ:AMZN)and Qualcomm(NASDAQ:QCOM)have signed up for their newly created foundry business as early customers. And it is only a matter of time before the likes of Apple, Tesla(NASDAQ:TSLA), and many other large corporations start using Intel's US and Europe-based fabs to build their products in the Western hemisphere.</p>\n<p>In the interest of national security, the United States needs to have advanced semiconductor manufacturing capabilities on American soil. And Intel is the only company that can rise up to meeting critical infrastructure needs for the US and other western countries. Hence, Intel is an essential semiconductor company for the United States.</p>\n<p><b>2. Scale</b></p>\n<p>Intel may not be the dominant semiconductor company it once was; however, it is still the largest chip supplier (by revenue) across the globe. Even though Intel's operating margins have trended lower in recent years (probably due to a stronger competitive environment), they remain best-in-class. With Intel's new strategy of outsourcing its advanced technology manufacturing needs to already-overburdened foundry services rivals - TSMC and Samsung - Intel can stem the growth of AMD and Nvidia to some extent.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/925340a0ba026cf26bd46ebc40035803\" tg-width=\"640\" tg-height=\"379\" referrerpolicy=\"no-referrer\"><span>Source: YCharts</span></p>\n<p>Due to Intel's massive size as a customer, foundries such as TSMC are better off partnering with Intel compared to their existing relations with the AMDs and Nvidias of this world. As per the latest announcements from the Architecture Day 2021 presentation, Intel will be collaborating with TSMC on its new Alchemist family of discrete GPUs. In my opinion, this move is just the start of a deeper relationship between the two companies. Over the next few years, I expect Intel to become one of TSMC's largest clients, and once that happens, it will be able to gain access to TSMC's latest manufacturing process innovations before smaller rivals such as AMD.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/5b56dbc43d8b71951ba2643bf273d5cf\" tg-width=\"640\" tg-height=\"327\" width=\"100%\" height=\"auto\"><span>Source:Intel Architecture Day Presentation</span></p>\n<p>Therefore, I think Intel's scale is a massive advantage for the company as it embarks into a new era with its mixed-sourcing strategy. At the moment, TSMC is flooded with demand for its wafers but constrained by supply capacity. Hence, the idea of TSMC taking care of advanced technology manufacturing (higher-margin business) and outsourcing some of its other chip manufacturing work to Intel's foundry could turn into reality in the next few years. My point is that the deepening Intel-TSMC partnership could soon become a problem for smaller rivals such as AMD and Nvidia, which are completely reliant on external foundry services.</p>\n<p><b>3. Free Cash Flow Optionality</b></p>\n<p>Intel is a free cash flow machine. The chip giant has generated ~$32B in cash flow from operations and $16B in free cash flow in the last twelve months. As you can see below, Intel generates much higher FCF than its rivals - 3x Nvidia's FCF and ~6.5x AMD's FCF.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/8ee462b0f6b4d7afb3fb99295b387006\" tg-width=\"640\" tg-height=\"379\" width=\"100%\" height=\"auto\"><span>Source: YCharts</span></p>\n<p>Under previous leadership, Intel's policy focused on returning the majority of its free cash flow back to shareholders in the form of dividends and stock buybacks. As Intel started losing its product leadership and monopolistic market share, the management kept inflating its stock buybacks. The financial engineering attempt has more or less failed to garner much success in lifting Intel's market cap, which is now lower than it was three years back.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/6d4265b5fdf8bfe0e368e1d3319fdfaf\" tg-width=\"640\" tg-height=\"379\" width=\"100%\" height=\"auto\"><span>Source: YCharts</span></p>\n<p>In the near term, Intel's free cash flow generation is likely to remain robust due to an extremely strong demand environment in the chip sector. Therefore, Intel's new leadership team has ample resources to orchestrate a turnaround at the company. Gelsinger has already made some big moves by entering the foundry services business, and a $20B commitment to building two new fabs in Arizona is just the first step. I believe Intel's plan to become a Western alternative to TSMC and Samsung foundry holds merit. The world needs a balanced semiconductor supply chain, and as we discussed before, Intel is probably the only company that can deliver at-scale foundry services on Western soil.</p>\n<p><b>Intel Is Massively Undervalued</b></p>\n<p>To determine Intel's fair value, we will employ our proprietary valuation model. Here's what it entails:</p>\n<ul>\n <li><p>In step 1, we use a traditional DCF model with free cash flow discounted by our (shareholders) cost of capital.</p></li>\n <li><p>In step 2, the model accounts for the effects of the change in shares outstanding (buybacks/dilutions).</p></li>\n <li><p>In step 3, we normalize valuation for future growth prospects at the end of the 10 years. Then, we arrive at a CAGR using today's share price and the projected share price at the end of 10 years. If this beats the market by enough of a margin, we invest. If not, we wait for a better entry point.</p></li>\n <li>In step 4, the model accounts for dividends.</li>\n</ul>\n<p><b>Assumptions:</b></p>\n<table>\n <tbody>\n <tr>\n <td><p>Forward 12-month revenue [A]</p></td>\n <td><p>$75 billion</p></td>\n </tr>\n <tr>\n <td><p>Potential Free Cash Flow Margin [B]</p></td>\n <td><p>25%</p></td>\n </tr>\n <tr>\n <td><p>Average diluted shares outstanding [C]</p></td>\n <td><p>4.084 billion</p></td>\n </tr>\n <tr>\n <td><p>Free cash flow per share [ D = (A * B) / C ]</p></td>\n <td><p>$4.59</p></td>\n </tr>\n <tr>\n <td><p>Free cash flow per share growth rate (generous estimate)</p></td>\n <td><p>5%</p></td>\n </tr>\n <tr>\n <td><p>Terminal growth rate</p></td>\n <td><p>2%</p></td>\n </tr>\n <tr>\n <td><p>Years of elevated growth</p></td>\n <td><p>10</p></td>\n </tr>\n <tr>\n <td><p>Total years to stimulate</p></td>\n <td><p>100</p></td>\n </tr>\n <tr>\n <td><p>Discount Rate (Our \"Next Best Alternative\")</p></td>\n <td><p>9.8%</p></td>\n </tr>\n </tbody>\n</table>\n<p><b>Here are the results:</b></p>\n<p>Source: L.A. Stevens Valuation Model</p>\n<p>As you can see, Intel is worth $93.21 per share, i.e., it is undervalued by ~44%. The assumptions utilized in this valuation exercise are conservative, giving us an adequate margin of safety. Now, let us analyze Intel's expected returns to see if the stock is worth buying or not.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/3d8528f0eaaf22385ddff0c572ac7247\" tg-width=\"605\" tg-height=\"772\" width=\"100%\" height=\"auto\"><span>Source: L.A. Stevens Valuation Model</span></p>\n<p>As per these results, if one were to buy Intel at today's price of $52 and hold the stock for 10 years, they could expect share price appreciation at 11.14% CAGR. Considering Intel's dividend payouts, the total expected CAGR return without dividend reinvestment is 12.54%, and the total expected CAGR return with dividend reinvestment is 13.57% CAGR.</p>\n<p>Since these returns are higher than the hurdle rate (9.8%) of our dividend portfolio, I like Intel as a dividend growth investment.</p>\n<p><b>Concluding Thoughts</b></p>\n<p>Although Intel is no longer the gold standard in the semiconductor industry, the blue team should not be discounted out just yet. In my opinion, the powerful combination of Intel's at-scale manufacturing capabilities (on western soil) and massive financial nous should enable Gelsinger and Co. to power a turnaround at Intel.</p>\n<p>In relation to the semiconductor sector, Intel's stock is priced for failure; however, the pessimism represents an opportunity to outperform the market. The Intel turnaround story under Pat Gelsinger is probably a multi-year play, but Intel's massive free cash flow generation and reasonable dividend make it a good investment idea for dividend growth investors. The stock is significantly undervalued, and so, this investment could result in surprisingly positive share price appreciation over the next few years. In case of a downturn in the semiconductor sector (it is a cyclical industry), Intel's strong balance sheet and low valuation (compared to peers) should enable the company to outperform its rivals.</p>\n<p><i>Key Takeaway: I rate Intel a buy for DGI investors at $52.</i></p>\n<p>Thanks for reading, and happy investing. Please share your thoughts, concerns, and/or questions in the comments section below.</p>","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Intel Has 3 Big Advantages Over Nvidia And AMD</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nIntel Has 3 Big Advantages Over Nvidia And AMD\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-08-24 16:43 GMT+8 <a href=https://seekingalpha.com/article/4451160-intel-stock-3-big-advantages-over-nvidia-amd><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Summary\n\nIntel has three big advantages over AMD & Nvidia - Western Fabs, Scale, and Free Cash Flow Optionality.\nIntel's stock is worth $93.21, i.e., it is undervalued by ~45%. Due to limited downside...</p>\n\n<a href=\"https://seekingalpha.com/article/4451160-intel-stock-3-big-advantages-over-nvidia-amd\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"INTC":"英特尔"},"source_url":"https://seekingalpha.com/article/4451160-intel-stock-3-big-advantages-over-nvidia-amd","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1170452539","content_text":"Summary\n\nIntel has three big advantages over AMD & Nvidia - Western Fabs, Scale, and Free Cash Flow Optionality.\nIntel's stock is worth $93.21, i.e., it is undervalued by ~45%. Due to limited downside risk and double-digit expected returns, Intel's stock is a good investment for DGI investors.\nI rate Intel a buy at $52 for dividend growth investors.\n\nJHVEPhoto/iStock Editorial via Getty Images\nIntroduction\nIn recent years, Intel(NASDAQ:INTC) has fallen behind Nvidia(NASDAQ:NVDA) and AMD(NASDAQ:AMD) from a technological standpoint (resulting in market share losses) due to its well-established manufacturing process woes. Now, Intel continues to rake in record amounts of annual revenues [~$75B (and produces massive amounts of free cash flow)]; however, revenue growth is disappearing along with long-term customers such as Apple(NASDAQ:AAPL)[Chips for Macs are now designed in-house]. Intel is facing increased competition in all of its markets (CPUs, GPUs, IPUs, data centers, and others) from rivals who are growing aggressively and taking market share away from Intel.\nUnder the leadership of its new CEO,Pat Gelsinger, Intel is looking to move in a new direction with its \"IDM 2.0 strategy\". Last week, Intel presentedmultiple new architecturesthat will be powering its future product lineup that Intel had previously showcased while announcing the IDM 2.0 strategy. Since taking over at Intel, Gelsinger has quickly moved to change the mood and narrative around the company, andArchitecture Day 2021was another positive event.\nHaving an engineer at the helm of Intel was critical due to repetitive failures from previous management. Gelsinger, who previously served as the first CTO of Intel, has been quick to acknowledge Intel's failures, and although his vision is for Intel to remain a semiconductor manufacturer (even turn into a foundry service), he is nimble enough to outsource advanced technology manufacturing to foundry rivals. During the presentation last week, Intel announced a larger partnership with TSMC(NYSE:TSM), which will see Intel's Alchemist family of discrete GPUs built on TSMC's 6nm technology. Now, according to Gelsinger, Intel could regain manufacturing process leadership in 2025. However, in the meantime, Intel's new mixed-sourcing strategy will allow the company to deliver market-leading products that can compete effectively with its rivals [AMD and Nvidia] right away. Thereby stemming market share losses & potentially winning some of it back [in CPUs and data center markets] while establishing a sizeable market share in other markets [viz. GPUs, IPUs, etc]. At the moment, the demand for semiconductor chips is through the roof, and so, Intel's IDM 2.0 strategy stands a good chance of working out well.\nDespite the market narrative around the company, Intel is selling everything it is able to produce at the moment. Due to a massive chip shortage, the demand-supply balance in the semiconductor industry is heavily skewed towards demand, and this equation is unlikely to be rebalanced until 2023. And so, Intel's near-term future is more than secure. The outcome of Intel's \"IDM 2.0 strategy\" will be apparent within the next couple of years, and we will see if Intel can return to faster revenue growth numbers under Gelsinger's leadership. If Intel manages to do that, the stock could get re-rated to a (much) higher trading multiple.\nIn the past,I have liked the idea of a fabless Intel; however, Intel's manufacturing capabilities are critical to U.S. national security and supply chain resilience. The uncertain China-Taiwan situation represents heightened geopolitical risks for the global semiconductor industry. Therefore, I support Intel's ambitious foundry plans despite the unending manufacturing process challenges (maybe Pat is the guy to solve it).\nToday, Intel is not a market darling anymore. When it comes to the semiconductor sector, most investors prefer to invest in Intel's fast-growing rivals, such as Nvidia or AMD (and it's been that way for quite some time). Intel's current valuation of $212B (~2.75x P/S) in this market environment is ridiculously cheap. The market is pricing Intel for failure. However, in my opinion, Intel holds at least three big advantages over its major competitors:\n\nWestern Fabs\nScale\nFree Cash Flow Optionality\n\nThe above-mentioned advantages will likely allow Intel to survive and thrive over the next decade and beyond. Before we determine Intel's valuation to formulate an investment decision, let's discuss each of these advantages in more detail.\nIntel's Big Advantages Over AMD & Nvidia1. Western Fabs\nIn recent times, the semiconductor supply chains have faced severe shortages leading to massive loss of sales across various end industries (e.g., auto industry, etc.). The coronavirus pandemic exposed the concentration risk in our global supply chains, and global organizations are in dire need of (more geographically) balanced semiconductor supply chains.\nIntel's major competitors Nvidia and AMD are fabless semiconductor companies, i.e., they design their chips in-house and get them manufactured at foundries such as Taiwan's TSMC and South Korea's Samsung(OTC:SSNLF). As you may be aware, TSMC's manufacturing process technology is currently the gold standard in the semiconductor industry. China wants to retake Taiwan (a democratic island situated right off the shore of mainland China) back into its fold. Hence, the current semiconductor supply chain carries massive geopolitical risks.\nAs of Q2 2021, Intel owns property, plant, and equipment worth ~$58B [largest manufacturing assets among semiconductor manufacturers], and these fabs are located in the Western hemisphere. Intel is probably the only company that can serve as a western alternative to TSMC and Samsung. Therefore, Intel's western fabs are likely to emerge a big advantage over rivals AMD and Nvidia as global organizations look at diversifying their supply chains. Intel recently reported that Amazon(NASDAQ:AMZN)and Qualcomm(NASDAQ:QCOM)have signed up for their newly created foundry business as early customers. And it is only a matter of time before the likes of Apple, Tesla(NASDAQ:TSLA), and many other large corporations start using Intel's US and Europe-based fabs to build their products in the Western hemisphere.\nIn the interest of national security, the United States needs to have advanced semiconductor manufacturing capabilities on American soil. And Intel is the only company that can rise up to meeting critical infrastructure needs for the US and other western countries. Hence, Intel is an essential semiconductor company for the United States.\n2. Scale\nIntel may not be the dominant semiconductor company it once was; however, it is still the largest chip supplier (by revenue) across the globe. Even though Intel's operating margins have trended lower in recent years (probably due to a stronger competitive environment), they remain best-in-class. With Intel's new strategy of outsourcing its advanced technology manufacturing needs to already-overburdened foundry services rivals - TSMC and Samsung - Intel can stem the growth of AMD and Nvidia to some extent.\nSource: YCharts\nDue to Intel's massive size as a customer, foundries such as TSMC are better off partnering with Intel compared to their existing relations with the AMDs and Nvidias of this world. As per the latest announcements from the Architecture Day 2021 presentation, Intel will be collaborating with TSMC on its new Alchemist family of discrete GPUs. In my opinion, this move is just the start of a deeper relationship between the two companies. Over the next few years, I expect Intel to become one of TSMC's largest clients, and once that happens, it will be able to gain access to TSMC's latest manufacturing process innovations before smaller rivals such as AMD.\nSource:Intel Architecture Day Presentation\nTherefore, I think Intel's scale is a massive advantage for the company as it embarks into a new era with its mixed-sourcing strategy. At the moment, TSMC is flooded with demand for its wafers but constrained by supply capacity. Hence, the idea of TSMC taking care of advanced technology manufacturing (higher-margin business) and outsourcing some of its other chip manufacturing work to Intel's foundry could turn into reality in the next few years. My point is that the deepening Intel-TSMC partnership could soon become a problem for smaller rivals such as AMD and Nvidia, which are completely reliant on external foundry services.\n3. Free Cash Flow Optionality\nIntel is a free cash flow machine. The chip giant has generated ~$32B in cash flow from operations and $16B in free cash flow in the last twelve months. As you can see below, Intel generates much higher FCF than its rivals - 3x Nvidia's FCF and ~6.5x AMD's FCF.\nSource: YCharts\nUnder previous leadership, Intel's policy focused on returning the majority of its free cash flow back to shareholders in the form of dividends and stock buybacks. As Intel started losing its product leadership and monopolistic market share, the management kept inflating its stock buybacks. The financial engineering attempt has more or less failed to garner much success in lifting Intel's market cap, which is now lower than it was three years back.\nSource: YCharts\nIn the near term, Intel's free cash flow generation is likely to remain robust due to an extremely strong demand environment in the chip sector. Therefore, Intel's new leadership team has ample resources to orchestrate a turnaround at the company. Gelsinger has already made some big moves by entering the foundry services business, and a $20B commitment to building two new fabs in Arizona is just the first step. I believe Intel's plan to become a Western alternative to TSMC and Samsung foundry holds merit. The world needs a balanced semiconductor supply chain, and as we discussed before, Intel is probably the only company that can deliver at-scale foundry services on Western soil.\nIntel Is Massively Undervalued\nTo determine Intel's fair value, we will employ our proprietary valuation model. Here's what it entails:\n\nIn step 1, we use a traditional DCF model with free cash flow discounted by our (shareholders) cost of capital.\nIn step 2, the model accounts for the effects of the change in shares outstanding (buybacks/dilutions).\nIn step 3, we normalize valuation for future growth prospects at the end of the 10 years. Then, we arrive at a CAGR using today's share price and the projected share price at the end of 10 years. If this beats the market by enough of a margin, we invest. If not, we wait for a better entry point.\nIn step 4, the model accounts for dividends.\n\nAssumptions:\n\n\n\nForward 12-month revenue [A]\n$75 billion\n\n\nPotential Free Cash Flow Margin [B]\n25%\n\n\nAverage diluted shares outstanding [C]\n4.084 billion\n\n\nFree cash flow per share [ D = (A * B) / C ]\n$4.59\n\n\nFree cash flow per share growth rate (generous estimate)\n5%\n\n\nTerminal growth rate\n2%\n\n\nYears of elevated growth\n10\n\n\nTotal years to stimulate\n100\n\n\nDiscount Rate (Our \"Next Best Alternative\")\n9.8%\n\n\n\nHere are the results:\nSource: L.A. Stevens Valuation Model\nAs you can see, Intel is worth $93.21 per share, i.e., it is undervalued by ~44%. The assumptions utilized in this valuation exercise are conservative, giving us an adequate margin of safety. Now, let us analyze Intel's expected returns to see if the stock is worth buying or not.\nSource: L.A. Stevens Valuation Model\nAs per these results, if one were to buy Intel at today's price of $52 and hold the stock for 10 years, they could expect share price appreciation at 11.14% CAGR. Considering Intel's dividend payouts, the total expected CAGR return without dividend reinvestment is 12.54%, and the total expected CAGR return with dividend reinvestment is 13.57% CAGR.\nSince these returns are higher than the hurdle rate (9.8%) of our dividend portfolio, I like Intel as a dividend growth investment.\nConcluding Thoughts\nAlthough Intel is no longer the gold standard in the semiconductor industry, the blue team should not be discounted out just yet. In my opinion, the powerful combination of Intel's at-scale manufacturing capabilities (on western soil) and massive financial nous should enable Gelsinger and Co. to power a turnaround at Intel.\nIn relation to the semiconductor sector, Intel's stock is priced for failure; however, the pessimism represents an opportunity to outperform the market. The Intel turnaround story under Pat Gelsinger is probably a multi-year play, but Intel's massive free cash flow generation and reasonable dividend make it a good investment idea for dividend growth investors. The stock is significantly undervalued, and so, this investment could result in surprisingly positive share price appreciation over the next few years. In case of a downturn in the semiconductor sector (it is a cyclical industry), Intel's strong balance sheet and low valuation (compared to peers) should enable the company to outperform its rivals.\nKey Takeaway: I rate Intel a buy for DGI investors at $52.\nThanks for reading, and happy investing. Please share your thoughts, concerns, and/or questions in the comments section below.","news_type":1,"symbols_score_info":{"INTC":0.9}},"isVote":1,"tweetType":1,"viewCount":1145,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"EN","currentLanguage":"EN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"andRepostAutoSelectedFlag":false,"upFlag":false,"length":14,"xxTargetLangEnum":"ORIG"},"commentList":[],"isCommentEnd":true,"isTiger":false,"isWeiXinMini":false,"url":"/m/post/834611536"}
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