Semiconductor giant Intel (INTC -0.38%) has seen its share prices surge in 2017, beating the overall stock market by double-digit percentages. Can Intel's valuation rise any higher from these multiyear highs?
Let's find out.
The story so far
In plain English, Intel is on a roll right now. The company knocked every quarterly report in 2017 out of the park. In particular, the third-quarter report in October was strong enough to drive Intel shares 20% higher that month. From bottom-line growth and cash flow increases to operating margins and returns on equity, Intel is posting results of a quality not seen in six years or more.
Investors are taking notice. As of mid-November, Intel shares had gained a market-beating 32% over the last 52 weeks. Even so, the stock trades at a ho-hum P/E ratio of 16 times trailing earnings. Based on the numbers alone, Intel's stock has plenty of room to run higher.
Image source: Intel.
What's next?
Looking ahead, Intel is investing in lots of long-term growth initiatives. Some of them may feel unfamiliar to longtime fans of the company, but this is the future.
The $15.3 billion buyout of Mobileye ensures Intel's place at the table as the market for self-driving cars evolves. The company is pouring resources into chips designed specifically for artificial intelligence applications. Meanwhile, the traditional PC market is not fading away as quickly as the cynics and critics had thought, giving Intel a firmer financial foundation than expected.
Challenges
It's not all wine and roses, of course. Many challengers -- fresh newcomers and old hands alike -- are making big bets on the data center market, where Intel produces some of its strongest profit streams today. This segment accounts for 30% of Intel's total revenue and 44% of the company's operating income these days. Management must fight for this hefty chunk of their company's overall business, and it won't be easy.
That's the name of the game, though. You win some and you lose some in the long run, and Intel is positioned to score more long-term wins than dramatic business losses.
All things considered, Intel shares are trading at a discount to the company's fantastic business prospects and to its proven success. I'm more than comfortable holding on to my Intel shares for the long run, and the stock is a good-looking choice for new investors as well.
