What if I told you I was buying a revolutionary tech company's stock, one of two or three of the best companies in the world's most important technology industry, suggests Cody Willard, growth stock expert and editor of Trading with Cody.
It's a company that is probably about to take market share for the first time in at least half a decade in an industry that is facing a potential decade-long supply constraint problem that this company could fix giving it a potential trillion dollar side business along with yet another side business that is one of two or three leading companies solving another trillion dollar side business. Did I mention that it's trading at a 12 P/E with a 3% dividend?
The stock is Intel (INTC). Let's unwind all of that as I mention that most investors think that Intel's boring. I agreed until recently. Look, INTC has been dead money for years. In fact, did you know that INTC is still way below its year 2000 bubble peak when its closing price was $74.88 on August 31, 2000.
Intel's boring old CPU semiconductor business has been losing market share; the company had pretty much become an IBM-like or GE-like financial engineering firm with a declining annuity business with boring CEOs and no risk-taking.
Meanwhile, near-term, all indications are that the company's latest chipset, the Alder Lake is actually cheaper and better than the competition and that's the kind of thing that can change gross margins, growth rates and eventually P/E multiples.
There's also the Sapphire Rapids chipset that is the fourth generation of Intel’s Xeon Scalable Processor brand data center server CPU. According to Intel it "will offer the largest leap in data center CPU capabilities for a decade or more." If it happens to take any market share, that would also reverse years of marketshare loss in Intel's other major existing business.
INTC's stock would likely double if the company takes any meaningful share in those two businesses and would likely be up at least a bit from these current high $40s levels if the company takes market share in just the laptop/desktop business.
One of the reasons I like the risk/reward of this trade so much is that I think the downside here is probably limited to about 20% or so, as I think it is quite unlikely that we'd ever walk in one day and see INTC down 50% (it could happen though) while you have pretty good odds that the stock could double on marketshare gains.
And most importantly, it's the virtual call option on the fab business, making chips for other companies, that makes Intel so compelling here. See, Taiwan Semiconductor and Samsung and Intel will be trying to make new semiconductor chip factories to try to meet the huge demand for new chips in everything in the physical world, from cars and computers and phones to shirts and wearables.
The semiconductor industry just crossed a half trillion dollars in annual sales for the first last year and that number will continue to be a mostly secular growth story for the next decade or two.
Intel's got the US government and state governments kicking in a big portion of money to help them pay for what will probably end up being close to $100 billion invested in new fabs over the next five years. Those fabs could create a trillion dollar valuation if Intel pulls this off and the demand for semiconductor chips remains as growth-y as it probably will.
Intel's finally got some real, actually pretty amazing potential catalysts along with the potential to take market share for the first time in years even as the market hates it. The Intel investment set up here does remind me a bit of when I was pounding the table to buy Tesla (TSLA) back at a split-adjusted $45 a share in 2019 because like Intel now, Tesla was hated and doubted by investors and analysts.
With Intel, my calculus is that if company doesn't take any market share and/or loses market share, the stock will stay around these levels or drop closer to $40. Meanwhile, the potential upside for INTC could be 500%-1000% over the next ten years if the company pulls off taking market share plus some sort of winning business in self-driving and especially if the fab business works out.
This Intel investment, like any, has its risks. But the potential and likeliness of the upside makes this the first time since Tesla in 2019 that you're seeing me pound the table on a new idea.
Nothing's easy out there and Intel's got a lot of work ahead of itself to pull some of this potential off so I'll remain balanced even as I have made INTC a top 3 largest position in my personal account and in our hedge fund and I plan to buy more on any weakness in both places. Be careful, as always.
