Semiconductor stocks surged throughout 2023, and Intel (NASDAQ:INTC) stock was no exception, nearly doublling in price. Some think INTC has become “priced for perfection” by the market. Any hiccup regarding its turnaround and AI-related efforts, and the stock could be at risk of coughing back many, if not all, of its 2023 gains come 2024.
Intel still has much to prove, but don’t assume the stock’s strong performance is due to an overly exuberant market. Such assumptions lean too much on the past situation with Intel. Not only are this year’s gains for INTC justified, there’s room for more upside as well.
INTC Stock: What a Difference a Year Makes
In early 2023, Intel shares were trading near multi-year lows. The market has a true “show me” attitude about the company, and its plans to turn itself around, largely by investing billions into becoming a major foundry, both for production of chips designed in-house and chips designed by third-parties.
Flash forward to now, though, and the market’s view on INTC stock has transformed. Mostly because the story has changed dramatically as well. Yes, Intel is still pursuing its foundry strategy. For instance, the company continues to move ahead with a planned $25 billion expansion of its wafer fabrication plant in Israel.
However, Intel has this year made progress pursuing another, perhaps more promising, growth opportunity. That would be the company’s efforts in AI processors. As I discussed recently, Intel unveiled its AI-compatible Core Ultra processors at its “AI Everywhere 2023” event held on Dec. 14.
Following this event, as well as other AI-related developments earlier this year, the market knows full well Intel is not an “AI dinosaur,” and is catching up to the competition. Yet while awareness has increased, Intel’s AI catalyst may not be fully priced-in.
A Path to New Highs?
Unlike other tech blue-chips, which have hit new highs either this year or during the 2021 runaway bull market, INTC has never climbed above its Dotcom era high-water mark. INTC’s all-time closing high is $74.88 per share, which was hit nearly 24 years ago, on Aug. 31, 2000.
The chip maker’s shares still have a way to go before reaching the past high, even after this year’s rally. I wouldn’t completely dismiss the possibility if not in 2024, maybe in 2025. Considering promising initial results with its foundry venture, as well as the AI processor developments, the sell-side has been upping its 2024 and 2025 earnings forecasts for INTC.
The top end of forecasts call for earnings of nearly $3 per share in 2024, and earnings well north of $3 per share in 2025. The foundry and AI catalysts, plus a rebound in PC chip demand, alongside $3 billion in annualized cost savings, point to $3-plus earnings per share being within reach.
If this happens, INTC could attain an earnings multiple of 25. In turn, enabling the stock to hit $75 per share, and from there head towards even higher prices.
Bottom Line: Be Careful, But Don’t Rule Out the ‘New’ Intel
As seen with the latest news regarding the company in recent months, the “old” Intel may be giving way to the “new” Intel, a lean, mean, chip-making machine that is well-positioned to grab a piece of the fast-growing AI chip market.
That said, as I’ve pointed out before, the company’s foundry gambit is a big gamble, with uncertain payoff odds, despite the initial strong results.
The jury’s still out on whether Intel can make material inroads into the AI chip market, given the process thus far achieved by its more cutting-edge competitors.
Nevertheless, while I wouldn’t “bet the ranch” on INTC stock, I wouldn’t rule it out as a buy, much less bet against it. At least, as there’s a clear cut path to further turnaround success for the company, and a road to new highs for shares.
INTC stock earns a B rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
