Why I'm Buying Intel After the Selloff

Intel Corp. (INTC) got slammed last week.

The market was not happy after the company reported earnings. 

The stock plummeted 26% on Friday and then it dropped 6% on Monday in the middle of a broad market selloff. 

But I don’t see disaster. In fact, I’m buying. 

I’m bullish on Intel's long-term prospects and I believe the current share price represents a great buying opportunity.

Intel's has the potential to return to what it once was: the best chipmaker on the planet. The company is clearly on a turnaround path to reclaim process supremacy in chip manufacturing. 

Under CEO Pat Gelsinger's leadership, Intel is on track to introduce its 20A (2 nanometer) process in 2024 and 18A (1.8 nanometer) process by the end of 2025. Mass-producing these advanced chips will put Intel back on the map.

It isn't just talk; Intel has been hitting its milestones so far, giving me confidence in its ability to execute.

Last week’s earnings call provided evidence of progress. Gelsinger announced that Intel released the 1.0 PDK (Process Design Kit) for 18A last month, an important step that allows customers and partners to begin designing chips for this advanced process node. 

Moreover, Intel's Panther Lake processor for client computers and Clearwater Forest processor for servers – both on 18A – have already achieved power-on and are on track to launch next year. 

18A is a technical achievement and will represent Intel’s fifth new process launch in just four years – demonstrating Intel's ability to deliver on its roadmap.

The Foundry Game-Changer

Historically, Intel only made chips for Intel. But the company has launched a foundry business where it can make chips for customers. Intel's expansion into the foundry business is a big part of why I see a trillion-dollar valuation for Intel in the future. 

By aiming to become the manufacturer of choice for leading semiconductor design companies worldwide, Intel is positioning itself to capture a significant portion of the high-end chip market – a market currently dominated by Taiwan Semi.

During the earnings call, Gelsinger reaffirmed Intel's target of $15 billion in foundry revenue by the end of the decade. As of now, in fact, the company has a pipeline worth $15 billion in lifetime deal value from committed foundry customers. While near-term opportunities are focused on advanced chip packaging, the release of the 18A PDK has sparked increased interest from potential customers.

The AI Accelerator

Intel's participation in the AI chip market, particularly with its Gaudi 3 AI accelerator, is another reason why I think it’s a great time to buy Intel. 

The upcoming launch of the Gaudi 3 AI accelerator, later this quarter, will help Intel grab a share currently owned by Nvidia. According to Intel, Gaudi 3 promises to deliver roughly twice the performance per dollar in both inference and training compared to Nvidia's H100. And with Nvidia delaying the launch of its new Blackwell accelerators by months, it could create a great opening for Intel.

On top of that Intel is making significant strides in the AI PC category. The company has already shipped more than 15 million Windows AI PCs since December. It’s on track to ship over 40 million by year-end. 

The upcoming Lunar Lake and Arrow Lake processors will further extend Intel's leadership in this space, with Panther Lake on 18A set to deliver even more improvements next year.

Geopolitical Advantage 

With concerns over the concentration of advanced chip manufacturing in Taiwan, Intel's focus on U.S. and European production facilities offers an alternative. 

Both the Biden administration and potential future administrations emphasize the importance of domestic semiconductor production, aligning perfectly with Intel's strategy. 

Near-Term Challenges

Intel's recent earnings report and guidance were disappointing. The company faced headwinds from weaker-than-expected gross margins, driven by an accelerated ramp-up of AI PC products and the transition of Intel 4 and Intel 3 wafers from Oregon to Ireland. 

While this left a mark on near-term margins, it's a strategic move that will yield long-term benefits, including $1 billion in capital savings and improved gross margins as the Ireland fab scales up.

In response to these challenges and softer near-term demand, Intel has also announced an aggressive cost reduction plan. The company aims to cut operating expenses to approximately $20 billion in 2024 and $17.5 billion in 2025, representing a more than 20% reduction from prior estimates. 

These cuts aren’t an easy decision, but they show that Intel’s management is committed to maintaining profitability and improving efficiency.

Why I'm Buying the Dip

The recent plunge in Intel's stock price doesn't change why I like Intel. If anything, it makes the opportunity more attractive. 

In fact, I believe Intel has the potential to reach a trillion-dollar valuation by 2030. The market is reacting to short-term results, but Intel's turnaround is a multi-year journey. The company's progress in process technology, foundry services, and AI accelerators are still in their early stages. 

With a commitment to technological leadership, the current price represents a great buy opportunity, should Intel continue to execute on its turnaround plan. With 18A technology on track and showing good early results, Intel is setting up to regain process leadership.

Intel is also well-positioned to capitalize on the growing AI market, both in data centers with Gaudi 3 and in client devices with its AI PC initiative. 

While the market focuses on quarterly results, I'm looking at Intel's potential over the next 5-10 years. 

Yes, there will be challenges. Competition remains fierce, and Intel must flawlessly execute its ambitious roadmap. 

But the potential reward is huge. If successful, Intel's ongoing revamp could be one of the greatest turnarounds in tech history, right up there with Apple after Steve Jobs came back to the company in 1997.

At just under $20 per share, Intel represents what I believe to be a rare opportunity to invest in a potential future trillion-dollar company at a fraction of that valuation, so consider buying the dip here. 

It often pays to be greedy when others are fearful. And right now, I'm feeling greedy.