Intel (NASDAQ:INTC) is on a tear. Resumption of trade talks between the U.S. and China helped the chip giant surge higher in Thursday trading. Intel stock has risen by more than 10% since the lows of Aug. 23.
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However, tech stocks have traded on hopes for a trade deal before. In the recent past, this had brought disappointment and lower stock prices when trade talks experienced a setback.
Although this changes nothing about the long-term case for Intel stock, shorter-term traders need to exercise caution.
It’s Intel’s Turn to Shine
Admittedly, trade talks also help peers such as Nvidia (NASDAQ:NVDA), Qualcomm (NASDAQ:QCOM), and AMD (NASDAQ:AMD) as all semi stocks derive revenue from China. Still, this offers welcome relief to an Intel which has faced earnings disappointments, CEO scandals, and lagging product development in recent years.
Most of the former darlings of the PC era such as Nvidia and Microsoft (NASDAQ:MSFT) have recovered by building market leadership in other areas of tech. However, Intel has lagged these giants. It currently trades at just 11.4 times forward earnings and has struggled with profit growth.
Despite the setbacks, late last month I urged investors to buy Intel stock. The low multiple lags historic valuations by a wide margin. Moreover, Intel could return to prominence due to the potential for 5G-related growth. However, trade talks may serve as a compelling motivation for now.
INTC Is a Buy, but Exercise Caution
The optimism over trade talks actually changes little about Intel, other than possibly when to buy. This news has undoubtedly sped up the growth in Intel. However, I would caution investors not to buy into the hype. Tech stocks, in general, have rallied on optimism about trade talks.
However, investors need to remember that Intel has traded in a range between approximately $44 to $59 per share for almost two years. When I urged traders to buy last month, it sold near the bottom of the range. Now, the current Intel stock price stands at over $50 per share. This takes it to roughly the middle of the range.
Moreover, we had also seen disappointments when the talks did not lead to a deal. Bottom line, we have seen this movie before, and INTC could face headwinds if this sequel turns out to be too much like the original.
Hence, if buying for the short-term, investors should exercise caution. A deal could bring cause investors to “sell the news.” Likewise, if talks fail, the deflated mood of investors could send Intel down in the near term.
Long-term Investors and INTC Stock
Still, long-term investors can still prosper by buying now. For one, trade talks could finally lead to a deal, and the stock would probably rally further from the discussions. Moreover, the ever-widening adoption of 5G should make INTC more valuable again over time.
However, this rally also shows signs that should raise the hopes of longer-term holders. As Tyler Craig mentions, Thursday’s 4% rally indicates more institutional interest in Intel. He also pointed out that the number of calls significantly exceeded puts, and that INTC rose above its 50-day moving average. At least for longer-term investors, this makes Intel a buy despite the recent run-up.
The Bottom Line on Intel Stock
Although the long-term case for buying Intel stock remains intact, shorter-term traders should consider turning cautious. Without question, a true end to the trade war would probably push INTC to new highs.
However, optimism about trade talks has often given way to more tariff threats. Hence, in the short term, Intel could easily move in either direction.
Still, if trade does not help INTC, 5G probably will. Moreover, the optimism has sent INTC stock to the middle of the two-year trading range. If it can reach and stay above the $60 per share level, we could soon witness the long-awaited Intel comeback.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.
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