New Price Target for Intel as Stock's Resurrection Continues

Last week, after the closing bell on Wednesday, Sarge holding Intel INTC announced that former Intel board member and long-time CEO of Cadence Design Systems CDNS Lip-Bu Tan had accepted the position of chief executive at the troubled chip designer... chip foundry... and somehow still member of the Dow Jones Industrial Average.

Readers may recall that I initiated Intel on the long side back when former CEO Pat Gelsinger was let go in December and have added to the position opportunistically since. The stock closed at $25.69 on Monday evening, up 6.8% on the day and up 29.9% since last Tuesday's close. INTC is now up 35.9% from its December low.

The hiring, which became effective Tuesday will see Tan added back to Intel's board of directors and replace interim co-CEOs David Zinser and Michelle Johnston Holthaus as the company's everyday leader. Johnston Holthaus will return to her role as CEO of Intel Products while Zinser returns to his role as CFO.

Interestingly...

Tan left Intel's board due to his concerns over the company's turnaround plan and had openly expressed his unhappiness with Gelsinger and the rest of the board over the overall size of Intel's workforce, the lack of an adventurous or risk-taking culture, and his feelings that it was overweight with middle managers. Yes, that's the same Pat Gelsinger's who's ousting prompted my willingness to invest in Intel.

The questions that swirl around Tan as a leader are several. Where does the design business go from here? Can the company ultimately compete with the likes of Nvidia NVDA for the higher-end AI business? Can it reverse the absolute taking away of share in the PC business that Advanced Micro Devices AMD has been able to benefit from as Lisa Su simply outclassed Pat Gelsinger as a business leader. 

Then there are the inroads that firms like Marvell Technology MRVL have made. Tan and Intel certainly have their work cut out for them.

Most importantly is the issue of what to do with the company's foundry business, which was set up to compete with Taiwan Semiconductor TSM and draw business as the last and current U.S. administrations try to reshore manufacturing businesses that have been lost to less expensive nations over the years. That business is said to have posted operational losses greater than $13 billion in 2024 without attracting a whole ton of high-end business save for its deal with Amazon AMZN.

On That Note...

The appointment of Lip-Bu Tan to the top job at Intel and his noted opposition to former CEO Pat Gelsinger whose idea it was to bring back Intel's foundry business has us wondering if Tan will sell off or separate the foundry from the rest of the company. It clearly is not a core business and is a long way from contributing in a profitable manner. Intel had reportedly been approached by Taiwan Semiconductor to form some kind of joint venture in that regard.

At roughly the same time that the TSM joint venture rumors broke, the Wall Street Journal reported that Broadcom AVGO had possibly shown interest in acquiring the still profitable, still cash flow positive chip design business. Qualcomm QCOM has also been rumored to have shown interest in purchasing parts of Intel.

Don't Look at the Fundamentals

This is about Intel's future or at least its ability to sell off bits and pieces strategically. There is still that majority stake in autonomous driving technology developer Mobileye MBLY. 

The company reported a 7.4% year over year decrease in revenue for the fourth quarter and has sported a year over year contraction in overall sales for three consecutive quarters and for 15 of the past 17. That's gross.

That said, the balance sheet is not awful. As of December, current assets added up to $47.324 billion, including $22.062 billion in cash and $12.198 billion in inventories. Current liabilities ran at $35.666 billion, including $3.729 billion in debt due within a year. That left the company with a current ratio of 1.33 and a quick ratio of 0.98. I don't love these ratios, but the current ratio passes muster, and the quick ratio is close.

Intel does have long-term debt of $46.282 billion on the books and that will have to be managed, but the balance sheet is not a disaster. Obviously, to do that, free cash flow, which has been negative for five consecutive quarters, will have to somehow be reversed.

The Chart

Readers will see what I am very loosely calling a triple bottom pattern of bullish reversal with a pivot of $27.50. Yes, I can see that this is really a six-bottom reversal, but my computer program really can't handle that. What that does tell me, though, is that support down in the $18's is very, very well established.

Note that Relative Strength is now at its third highest level since last summer's beat-down. Note that the daily MACD (moving average convergence/divergence) is suddenly postured mildly bullishly with the histogram of the 9-day EMA (exponential moving average) now above zero and the 12-day EMA crossing above the 26-day EMA in positive territory. 

The stock has retaken its 50-day SMA (simple moving average), 21-day EMA and 200-day SMA all in succession and needs a tick of at least $28.89 to fill that gap from early August.

Intel Key Price Points

Price Target: $34

Pivot: $27.50

Add: Down to 200-day SMA (currently $23.90)

Panic: Loss of 50-day SMA (currently $21.50)

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