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Why Intel Stock Just Dropped

By Rich Smith - Dec 7, 2020 at 4:23PM

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Apple was once an Intel customer. Is it now a competitor?

What happened

After posting nine straight trading days-worth of gains, Intel Corporation ( INTC -0.51% ) surprisingly failed to make it 10 in a row today, instead turning tail and diving 4% as of 3:25 p.m. EST.

You can blame Bloomberg for that -- and Apple ( AAPL -1.17% ).

Apple M1 logo.

Image source: Apple.

So what

Apple debuted its M1 custom-made computer chip for Mac computers last month, proving that it no longer needs Intel to power its PCs. This morning, Bloomberg reported that the Cupertino computer maker is now planning to release a new and improved microprocessor in 2021 -- and it will be faster than Intel's fastest. If this proves correct, Apple may transition entirely away from buying chips from Intel by 2022.  

Now what

Apple remains a niche player in PCs, and Bloomberg notes that Intel depends on Apple for "less than 10% of its revenue," so losing Apple as a customer -- even forever -- won't doom the chipmaker. In fact, with Intel stock trading at just 10 times earnings, one might even be inclined to see today's sell-off as a buying opportunity for Intel stock.

Before you buy, however, consider this: Bloomberg worries that Apple's introduction of newer and better semiconductor chips could "accelerate a shakeup in an industry that has long been dependent on Intel's pace of innovation." It could give customers -- and investors -- the impression that Intel is no longer the best in this business. And if that happens, it could throw Intel's revenue growth prospects into question as customers increasingly try out competing products to see if they perhaps offer better value.

Currently, analysts who follow Intel only see the company growing earnings at about 5% annually over the next five years. If Apple no longer needs Intel, however -- and if other customers begin to wonder if they might not need Intel, either -- that 5% projection could prove to be optimistic.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Intel Corporation Stock Quote
Intel Corporation
INTC
$49.25 (-0.51%) $0.25
Apple Inc. Stock Quote
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AAPL
$161.84 (-1.17%) $-1.92

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