Intel stock price has bounced back in the past few days as investors place their bets on the recovery of the embattled American chip company. The stock has also risen due to the latest pressure by Daniel Loeb, the activist investor. It is trading at $50, which is 10% above its lowest level on December 21.
What happened: Intel, once the biggest chip manufacturer in the world, is a company in trouble. This is mostly because of its manufacturing flaws that have seen it delay its 7nm chips until 2022.
Its competitors like Advanced Micro Devices (AMD) and Nvidia have taken advantage of this to take market share. Indeed, while Intel’s share of the CPU and GPU industry is falling, the two firms have been becoming more popular. Subsequently, their share prices doubled in 2020 while Intel stock price dropped. They also announced mega deal, with AMD acquiring Xilinx and Nvidia acquiring Arm Holdings.
What else: Intel is also being pressured by its customers who are launching their own chips. For example, Apple launched its M1 chips in 2020 that have been praised for their speed, efficiency, and reliability. Amazon is building its chips that will power its data centre business. Also, Microsoft is building its chips for data centre and handheld PC. Therefore, investors believe that this competition will affect Intel’s business in the long run.
But... But. But: While Intel is under pressure, it is a relatively strong company. Indeed, it generated more than $21 billion in net profit in the past 12 months alone. In the same period, AMD and Nvidia had a total revenue of more than $23 billion.
Also, Intel has ways to boost its cash flow, including selling its foundry business. Further, while the headlines are negative, Intel’s 10nm chips perform reasonably well than its peers. It is also relatively cheap and has a strong dividend yield that is covered by a good payout ratio.
The daily chart below shows how ugly Intel share price has been recently. It is trading at $50, which 10% higher than its December low. Also, the shares have moved above the 25-day and 50-day moving average, signalling that bulls are in control.
It is also slightly above the 23.6% Fibonacci retracement level. Therefore, there is a possibility that Intel stock price will continue rising as bulls aim for the 50% Fibonacci retracement at $56 in the near term.
