New Intel Price Target and Plan After Latest Head-Turning Move

I think perhaps that I let my bias get the better of me. 

When it comes to the chip space, both Nvidia  (NVDA)  and Advanced Micro Devices  (AMD)  have made me a lot of dough over recent years. They are both still "Sarge-folio" holdings though neither is at the moment a core holding. 

I knew I needed memory chips. I wanted those chips to be high-bandwidth (HBM) DRAM type memory chips. Hence, my late to the party, but still successful investment in Micron Technology  (MU) . I see the runs that Seagate Technology  (STX)  and Western Digital  (WDC)  have been on, but those firms don't produce the kinds of memory I am investing in.

Then there's Intel  (INTC) . Have I let my personal bias prevent me from making money in Intel? I mean, maybe. 

Intel for years could not get out of its own way. I clearly and correctly championed AMD as Lisa Su simply stole Intel's lunch in the PC CPU business. I stuck with Nvidia and AMD as gaming, mining, machine learning and then AI became the high-end, high-margin focus. Intel was hardly even seen as a player in these businesses. Former CEO Pat Gelsinger even tried to restart the firm's foundry business, and that business was met with crickets, not customers.

New Sheriff in Town

Was I arrogant? Did I underestimate new Intel CEO Lip-Bu Tan? If I look in the mirror, I have to admit that yes, I thought I knew better. The fact is that I did not. 

The man is a dealmaker. After a rough start with President Trump, this CEO secured from the federal government a 10% stake (About $11.1 billion) in the firm. He also secured a $5 billion investment from potential rival Nvidia, not to mention an agreement to co-develop chips for both the PC and the data center. Earlier this week, this CEO secured a $2 billion investment by Japan's Softbank (SFTBY).

On top of that, Lip-Bu Tan has at least talked or has been rumored to talk to Apple  (AAPL)  about a potential investment and to Taiwan Semiconductor  (TSM) , a firm that has dominated the very foundry business that Intel is trying to grow. 

On Wednesday afternoon, Semafor broke a story claiming that Intel was engaged in discussions with AMD to possibly start using Intel's foundry business as its domestic fab provider. AMD has always used Taiwan Semi. That would kind of be like Coca-Cola  (KO)  working with PepsiCo  (PEP)  or Home Depot  (HD)  cooperating with Lowe's  (LOW) . 

No, I won't be underestimating Lip-Bu Tan or Intel ever again.

The Chart

Intel is expected to report its fiscal third-quarter results in about three weeks. Current expectations are for adjusted EPS of about $0.00 on revenue of $13.1 billion. 

While results like this would reflect a year-over-year sales contraction of 1.4%, they would compare quite favorably to the year-ago adjusted loss per share of $0.46. Apparently, corporate execution is improving. 

The firm is being infused with capital. Oh, and I think it is becoming obvious that the days of Intel experiencing sales contractions are racing towards that light at the end of the tunnel.​

I wrote to you back on September 18 and showed you this setup, and still somehow did not benefit myself. Readers will see that ​INTC has broken out from a more than 12-month-long Flat Base with a $27.55 pivot. I wrote at that time that my price target would be the halfway back point or 50% retracement of the December 2023 through April 2025 selloff.

Flash forward a couple of weeks and the shares are trading close to $36, having exceeded that hypothetical target. I did mention, however, that I would reconsider if I saw that level taken and held. Here I am. 

The stock has left an unfilled gap in its wake that would require a print as low as $25.26 to fill. That's the negative. The stock has hit resistance at its 61.8% Fib retracement level of that long selloff as well, which is $36.60. That's my new pivot and this is my plan:

My Plan For Intel (in minimal lots)

- Purchase 100 shares of INTC at or close to $36.

- Sell (write) one October 24th INTC $41 call for about $1.35.

Net Basis: $34.65

For the new kids, this is known as a "buy-write" and we use these to reduce net basis in getting long the shares of a stock where we have already missed a move but think there could be more to it. 

I sell the call to reduce net basis, not because I want to get called away. If the trader in this example is called away, he or she would still experience an 18.3% profit. 

My price target, if not called away, will be $45, but the $45 calls with the same expiration date pay more than $0.50 less, hence compromise is made. 

Just an idea, but one I plan to put into play (or something similar) once this article becomes public information.

At the time of publication, Guilfoyle was long NVDA, AMD and MU equity.