In conjunction with the kick off of the CES technology show in Las Vegas, Intel (NASDAQ:INTC) has made some impressive announcements. It looks like Intel is continuing to innovate across all parts of its business, and that’s positive news for Intel stock.
AI Has Become a Key Part of INTC’s Business
Owners of INTC stock and those thinking of buying the shares should be encouraged that INTC is looking to use artificial intelligence (AI) throughout the company. AI is no longer only utilized by a few academics or actors in sci-fi movies. It is now becoming a major force in the tech world, and it should be a long-term driver of Intel stock.
Intel’s 10nm PC processor, which has the code name “Ice Lake,” leverages AI in a number of areas, including advanced graphics. The chip is expected to launch in the fourth quarter of this year.
Then there is the Intel Nervana Neural Network Processor for Inference (NNP-I). This system was built to handle the computing requirements of deep learning, which is at the heart of AI. (Deep learning involves processing huge amounts of data as part of the training process). Keep in mind that Facebook (NASDAQ:FB) is one of the partners in the development of NNP-I. Without a doubt, Facebook’s large repository of data will be a key factor of the success of NNP-1.
Also validating Intel’s AI systems, the chip maker announced a deal with Alibaba (NYSE:BABA). The two giants have formed a partnership to develop a 3D AI system for tracking athletes, and the system is slated to be used at the 2020 Olympic games in Tokyo. The technology will be able to deliver data on athletes’ biomechanics and analyze their performance using computer vision and deep learning. The system can work without athletes wearing any sensors.
Of course, Intel’s products for PCs and datacenters will still be the main drivers of Intel stock. These businesses continue to generate the bulk of the company’s revenues. But AI will boost these segments’ top lines, since Intel’s customers will be willing to pay more to get additional insight from their data, and Intel’s new semiconductors will give them that.
Intel Stock Has Some Headwinds
Now it’s true that INTC stock has its issues. Some of Intel’s chips have had snags and delays. Additionally, its CEO abruptly resigned, and it’s facing intense competition. Specifically, INTC has to battle tough rivals like Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD). Even companies like Amazon.com (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOL) are entering the chip space.
Despite all these headwinds, Intel’s business has remained fairly stable, and that’s likely to remain the case. Among the strengths of INTC and Intel stock are the company’s massive foundries, large patent portfolio and thousands of talented engineers across the globe.
The Bottom Line on Intel Stock
In the third quarter, Intel showed quite a bit of momentum. Its revenue shot up 19% year-over-year to $19.2 billion and its profits jumped 47% to $1.38 per share.
In light of this, it should be no surprise that Bank of America upgraded Intel stock to a “buy” rating and placed a $60 price target on it, reflecting roughly 25% upside from the current levels of INTC stock .
Granted, Intel’s sales growth will probably moderate, as the chip market is being pressured. Yet the valuation of Intel stock is still quite reasonable, as its forward price-earnings ratio is only ten. INTC stock also has a decent dividend yield of 2.59%, and it continues to aggressively buy back shares of Intel stock (INTC spent about $8.46 billion on share buybacks last year). So all in all, Intel stock remains a relatively low-risk way to play major trends in tech, including AI.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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