There’s no denying that 2020 has been an ugly year for every market to some extent. At the same time, there’s also no getting around the fact that Intel (NASDAQ:INTC) has looked terrible compared to its semiconductor rivals. At one point, it was trending along with the rest of the chip makers, providing its usual slow but consistent performance for stakeholders. Then, July happened and Intel stock suddenly found itself gasping for air.
I don’t want to beat a dead horse so I’ll be brief. Although Intel has always prided itself in innovation, in recent years, smaller rivals like Advanced Micro Devices (NASDAQ:AMD) have been putting forward incredibly compelling products. One particular standout for AMD relative to Intel stock was that the former was pumping out next-generation 7-nanometer chips. But in late July, Intel made the dreaded announcement that its 7nm chips will be delayed yet again.
Unfortunately, this setback represented a worrying trend of disappointments and delays. As a result, Intel saw a shake-up at the top, including the company’s struggling Technology unit getting new leadership. While that might be of some encouragement to beaten-down shareholders, critics contend that Intel is losing its grip.
Certainly, the latest developments don’t help matters. For one thing, Apple (NASDAQ:AAPL) has switched over to its own processors, which may impact Intel stock due to the underlying company facing pressure on multiple fronts. Second, AMD has started rolling out its 7nm Ryzen 4000 chips, which outperforms Intel’s current product pipeline.
As if to pour salt on open wounds, Nvidia (NASDAQ:NVDA) has started flexing its muscles. Known largely for its gaming-centric graphics processing units, Nvidia is now disrupting Intel in the data center space.
Intel Stock: Intriguing Bet for Patient Contrarians
If people want to avoid Intel stock, they have every justification to do so. Obviously, this is an organization that desperately needs a rethink across the entire spectrum. At the same time, comebacks, while incredibly challenging, are possible.
For instance, Best Buy (NYSE:BBY) was on life support at one time as Amazon (NASDAQ:AMZN) began stealing massive market share. Indeed, during the dark days for the retailer, customers would come in and use Best Buy as a test room. Later, they would purchase the products from an online marketplace.
But management recognized that the brick-and-mortar platform provided experiences that online retailers couldn’t duplicate. Slowly but surely, Best Buy came back. Another example is software giant Microsoft (NASDAQ:MSFT), which was getting beat up by Apple. Again, Microsoft relied on its core strengths, such as practical applications for students and professionals. Eventually, it too came back from irrelevancy.
Yes, Intel stock is down big due to the next-gen chip delays. Further, such delays in the semiconductor space are incredibly costly. But INTC is also levered to myriad other innovations, such as big data and artificial intelligence. It also has a commanding presence in data centers, where it will not be easily displaced.
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Source: Chart by Josh Enomoto
Admittedly, the headline numbers don’t look great. However, for the contrarian with an iron stomach, Intel stock offers a compelling discount.
Primarily, INTC is down nearly 11% for the year (on a weekly average basis). In sharp contrast, NVDA is up nearly 128%, while AMD has gained almost 79% on the same basis. Further, the benchmark VanEck Vectors Semiconductor ETF (NASDAQ:SMH) is up 25%. All three names are in the top 10 of the 26-stock portfolio of that exchange-traded fund.
It’s possible that NVDA and AMD are overheated. But with Intel stock, that narrative is far less likely.
Geopolitics Can Also Help INTC Stock
Despite the rancor in our political race, there’s one thing that both Democrats and Republicans seem to agree on: China, or more specifically, containing the red menace.
As I noted in last month’s story featuring Taiwan Semiconductor Manufacturing (NYSE:TSM), TSM seems to have a technological edge over China’s Semiconductor Manufacturing International (OTCMKTS:SMICY). Moreover, Washington-Beijing tensions means that Chinese companies have less access to American/western technologies.
Nevertheless, China is undeterred, engaging in a brain drain tactic to shore up its tech acumen. And that presents a real danger not only economically but also from a national security perspective. In other words, the U.S. government has every incentive to support Intel and the broader semiconductor community.
In the new normal, it’s no longer just about producing the fastest chips for ego’s sake. Instead, the U.S. tech industry is ensuring that Americans are in the lead, not China or other adversaries. Therefore, on a longer-term basis, I believe Intel stock makes sense. But you’ll probably experience some turbulence along the way.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.