What happened
Shares of Intel (INTC -9.20%) were defying the broader market sell-off today, rising as much as 3% in early-morning trading before settling into a 1.1% gain as of 1:50 p.m. ET. At that time, the Nasdaq Composite was down nearly 2%.
Intel shareholders can thank a positive note from a Wall Street analyst, as well as other positive commentary out of a semiconductor-focused Asian news publication, for today's relative outperformance. Combined with a stock that had already trailed behind the rest of the semiconductor industry for years, and Intel was able to overcome today's market turmoil.
So what
On Tuesday, Keybanc Capital Markets analyst John Vinh issued mildly positive commentary on Intel's stock. I say mildly, as it was more an affirmation that the turmoil Intel has experienced hasn't gotten worse, and that its previously announced turnaround plans remained on track.
Still, that seemed to be enough to lift the stock against gravity. Citing channel checks, Vinh noted that the beaten-down PC market "hasn't gotten worse," which is encouraging. Intel depends on the PC market for cash to reinvest in its foundry buildout and efforts to catch up to competitors on leading-edge process nodes.
Even if PC sales stay at current levels, it could actually mean client chip growth for Intel compared with the last four to six quarters. That's because PC suppliers were also reducing their inventory at that time, meaning Intel's sales to PC makers were even worse than "sell-through" demand. As per the last conference call with analysts, CEO Pat Gelsinger noted PC inventories had normalized. Therefore, Intel could see PC chip sales growth in the coming quarters, even if overall PC sales remain at current low levels.
Meanwhile, Vinh also noted Intel's latest server chip, Sapphire Rapids, is beginning to ramp in meaningful volume. Sapphire Rapids contains a lot of new innovation, including a chiplet architecture and several enhancements that are applicable for artificial intelligence servers. Also noted on the recent conference call, the Sapphire Rapids chip is garnering premium pricing in the market.
The positive note on Sapphire Rapids, as well as a positive article today from Asian chip publication Digitimes on Intel's turnaround, is appearing to encourage investors. Intel is attempting to progress on five semiconductor nodes in four years, so Sapphire Rapids is really just the first initial step on a journey that should see improvements through 2025, when management expects to regain process leadership.
Now what
If Intel continues to execute and pulls off the turnaround Gelsinger has outlined, there could be meaningful upside for the stock. Of note, Intel has badly trailed the iShares Semiconductor ETF (SOXX 2.11%) for the last five years, as it fell behind competitors in process leadership. But Gelsinger, who came on board as CEO in early 2021, has set an ambitious multiyear turnaround plan.
Today was certainly encouraging; however, the ultimate success of Gelsinger's turnaround won't really be known until 2025. Until then, Intel investors will have to keep tabs on new product execution announcements and earnings calls and decide if they want to roll the dice on success or stay away.
But there is also risk to waiting; if Intel is ultimately successful, its stock could take off at some point well before the 2025 goals are known to be hit or not. Thus, Intel remains a high-risk but high-upside stock for those interested in turnaround stories.
