Intel (INTC -0.56%) has moved in a different direction since former CTO Pat Gelsinger took the CEO position in early 2021. Among the most pressing problems for this blue-chip stock is a lost technical lead, and addressing this problem will be critical if the company wants to succeed in the metaverse.
However, rivals in the chip industry like Nvidia (NVDA 5.49%) and Advanced Micro Devices (AMD 1.69%) have received more attention from metaverse investors. Now, with its new strategy enacted, investors will have to determine whether the metaverse can help Intel stage a revival.
Intel and the metaverse
Like its peers in the chip industry, Intel has taken a deep interest in the metaverse. It outlined a strategy at the RealTime conference on metaverse technologies. Raja Koduri, senior vice president and general manager of Intel's accelerated computing systems and graphics group, stated that computing capabilities would have to rise by "several orders of magnitude" to deliver that computing power at the low latencies required for this environment.
To this end, the company plans to build on its Core, Xeon, and edge processors to promote this environment. The new X architecture, which will include its Arc Alchemist GPU, will further bolster these capabilities.
Nonetheless, to succeed in the metaverse, management will have to address the red flags for Intel's future. Nvidia's focus on AI and longtime dominance in the GPU market give it natural advantages with the graphics aspects of the metaverse.
Additionally, the metaverse will depend heavily on data centers. Revenue in Intel's data center group (DCG) rose 10% in Q3 compared with the same quarter in 2020. However, Omdia recently reported that AMD earned a record market share in the data center market in September, indicating Intel could struggle in this part of the metaverse as well.
Moreover, even with Gelsinger's moves to improve Intel's technology, product development cycles in the chip industry tend to take between three and five years. Thus, the prospect of whether Intel can stage a comeback remains speculative at this stage.
Still, a comeback is not out of the question. Intel had led the industry technologically for decades, and it continues to generate more revenue than AMD and Nvidia combined. Nonetheless, investors have so far shown little confidence that Intel can come back in this area.
Intel's financials offer little help (at least for now)
Additionally, current financials offer little good news to Intel bulls. In the first nine months of 2021, revenue of just over $58 billion rose by just 1% compared with the same period in 2020. Also, net income during the first three quarters of 2021 climbed by about the same rate to just over $15 billion. Income from gains in equity investments and a lower tax expense helped offset almost a nearly $4 billion increase in operating expenses.
Furthermore, full-year 2021 forecasts call for flat to modestly lower revenue compared with 2020. This may help explain why the stock price has risen by about 10% over the last 12 months, well under the S&P 500 total return of 31% during that time frame. Additionally, Intel has long failed to achieve any kind of valuation premium. Its price-to-earnings ratio stands at about 10, well below AMD's 46 earnings multiple and Nvidia's 92 P/E ratio.
Can the metaverse invigorate Intel stock?
Determining whether the metaverse can help Intel stage a comeback will take time. Despite Intel's leadership actively working to reinvigorate the company, Intel's financials and stock price remain sluggish. Nonetheless, product cycles in its industry take years to play out. Moreover, the fact that AMD and Nvidia surged to a technical lead shows that the competitive battle remains ongoing.
In the end, nobody knows how Intel will perform in the metaverse. Still, with a large base of operations and a low earnings multiple, investors hold a tremendous incentive to take a chance on the tech giant.