Investment Strategies / Falling Knives
No. of Recommendations: 3
Maybe not a falling knife anymore, unless viewed in slow motion over a long period of time. But INTC is down to half its peak, and has been a slow moving disaster now for the past few years. Decreasing revenue, decreasing EPS, product delays, and poor operational execution.
Today, it is making a real attempt to get a foundry business going, potentially coming out of the worst of its execution situation, and should benefit from the AI demand the chip sector is experiencing. Plus in the long term, there is an attractiveness to having a credible alternative to TMSC based in the US.
I really want to buy more, but have a hard time getting conviction on its business prospects. At a stock price of $34 though, is there enough risk mitigation to make investing even with a very uncertain future make sense? Thoughts?
No. of Recommendations: 6
Two years and a quarter after the original post, even after the pop over the last two months driven by USG and NVDA investment, INTC is still below the $34 share price I wrote about. But it’s the first serious sign that the thesis of a critical need for a US owned and based semiconductor company is playing out. INTC is the most credible option for that and there should be much further upside to the stock if business is directed to their foundry. The most challenging risk (customer willingness to sign on)now seems substantially mitigated. Technical risk on whether they can deliver chips needed to compete remains. But it feels like a much better time to take another look at INTC.
No. of Recommendations: 1
Up 50%+ in the last month. Now potentially getting AMD as a foundry customer.
No. of Recommendations: 2
INTC reported a Q3 that trounced expectations for earnings, strong cost control and even revenue above expectations due to data center demand. But the crux of their recovery is really what happens with their foundry business and whether they can be a competitive partner for AI chips. On that point, it still seems we are in a wait and see mode. Can they compete in this domain? Nothing in the Q3 call gave a good indication of what the reality was, and its still not clear if customers will put their commitment to the foundry. But INTC sounds optimistic about the opportunities in front of them. Stock is up strongly after hours, and should be up about 70-75% since early September.
No. of Recommendations: 5
This falling knife trade has worked out pretty well. Price at the first post back in July was $22.63. Current price is $38.50. My sense of the stock is that it no longer reflects the pessimism that drove down prices to "unreasonable" low levels. I put that in quotes because you could think it was reasonable if you didn't believe there was a high probability of a US government put option. But if you believed that the US would want to keep a US owned domestic producer of CPU and AI chips, you would be betting that luck would go your way. Some customers would be users of foundry services for reasons other then technical leadership, and unexpected mechanisms would arise to keep INTC out of the worst scenarios.
Fast forward 5 months and the valuation now reflects what I think is more reasonable for their situation. A lot of the downside protection story has now been reflected in the valuation. There is still potential for good upside with potential customers like apple becoming foundry customers.
I think this is kind of now done as a Falling Knives trade. The valuation seems reasonable again given that momentum on the commercial side is a speculative hope still, rather than demonstrated reality. The opportunity to invest in INTC as a bounce back to rationality I think has been played out.
I am now holding the stock on the potential of the foundry business to make some real customer inroads competitively. If it does, it should behave like a normal business with the potential for upside based on earnings improvement. I think that potential does exist because the demand for chips of all sorts, including CPUs, seems to be benefiting INTC, AMD, SAMSUNG, HYNIX, etc. But with INTC, there is also the potential for customer wins just because the world can't live with the idea that manufacturing expertise for these strategically important categories and supply chain risk would be so concentrated with TSMC.
So holding for now, but probably my last post in this forum as what I would consider a falling knife investment.
