Intel (NASDAQ:INTC) shares are trading at a valuation discount to the S&P,  even though a large catalyst is on the horizon. Microsoft (NASDAQ:MSFT) is in the process of sunsetting Windows XP, which will drive PC upgrades and may not be fully baked into the share price. Is Intel a buy here?

Intel is cheaper than the market
Despite being in over half of the worlds PC's, Intel is having difficulty maintaining mindshare among investors. The market is rewarding Intel with a P/E multiple of 13.8, a 26% discount to the S&P's multiple of 18.6 times. It seems like investors may perceive the company as an income play, as shares are yielding 3.4%, more than a full percentage point above Apple's 2.3%. The low relative valuation and high yield indicate that investors are assuming Intel has little opportunity for growth.

The reason growth expectations are low
Intel missed the boat on supplying chips for handsets and fell behind as Atom consistently lost out to Qualcomm's Snapdragon. Last year, though, Bay Trail was supposed to close the gap in terms of processing power. Testing by Engadget offered promise, showing that in three of the four benchmarks tested, the performance comparison between the Snapdragon 800 and Bay Trail ended almost in a draw. However, that didn't prevent Samsung from designing Intel out of its tablets. This is a headline-grabbing issue, but not a reason to count Intel out. The bigger near-term issue affecting the company's top line is that PC demand is likely going to see an uptick in the coming months.

Windows XP upgrades will accelerate PC Sales
Microsoft has decided to sunset Windows XP after 12 years of service. This means that Microsoft will not be supporting the operating system with security updates and software patches. You might think that most active computers would already be off XP, but many organizations won't migrate if they don't have to. The Washington Post estimates that 10% of government computers will still be running XP after April 8, when free support for the operating system ends. This sounds bad, but it's much worse overseas. The British government is reportedly paying $9 million to extend its support plan for one year after it was discovered that 85% of the National Health Service's 800,000 PCs were still running Windows XP. It's not just the government, though; according to CIO magazine, a survey of 1,077 businesses (mostly mid-sized) showed that 60% will not have migrated off of XP by the April sunset date.

OS upgrades lead to hardware upgrades
A PC is depreciated over four-five years, and the companies that tried to save money by buying under-powered hardware last time will be forced to upgrade the hardware in addition to the OS upgrade. In fact, if you calculate the cost of the difference between the cost of a new PC and the cost of a RAM upgrade, the time to upgrade the OS, and the labor involved, the difference is negligible, making hardware upgrades very prevalent. 

Low expectations, despite a catalyst
Shares of Intel look interesting considering the low valuation, attractive dividend yield, and potential growth catalyst in the coming months. The low valuation implies that growth expectations are low and make sense since Intel has been competing poorly on the mobile front.  What people are missing, though, is the catalyst of the Windows XP upgrade cycle that is likely to affect domestic and international businesses and government agencies.