Intel's Desirability as a Takeover Objective: Three Key Factors
Intel's stock saw a surprising 9% surge on January 17, fueled by rumors of an unknown investor expressing interest in buying the tech giant. This revival of interest in the once-dominant semiconductor company comes amidst its struggles, which have pushed its stock prices to multiyear lows.
Three reasons could explain why this potential buyer might be interested:
- Stock Valuation Structure: Intuitively, valuation refers to the P/E ratio. However, Intel's situation is different due to its falling earnings. Instead, we should focus on its book value and price-to-book ratio. Intel's book value is the value of its stockholders' equity, representing the leftover value if the company sells its assets and pays off liabilities. Despite a recent surge in the stock price, Intel's book value multiple is only 0.9, suggesting an 8% theoretical potential for increase via liquidation. This undervaluation, evident even compared to the S&P 500 average, makes Intel an attractive target for bargain hunters.
- U.S. Foundry Business: As the largest operator of U.S. foundries, Intel holds a strategic advantage. Nevertheless, its share of worldwide chip production has plummeted from 40% in 1990 to 12% in 2020. This has raised concerns among politicians, leading to the CHIPS Act, which provides $53 billion in funding for domestic chip production. Although foreign competitors like Samsung and TSMC have secured some funding, Intel's presence and commitment to invest billions in state-of-the-art foundries could position it as one of the world's top chip producers in the future.
- Current Semiconductor Market: While Intel may have lost ground technologically to competitors like AMD and Nvidia, it still generates significant revenue. In the first nine months of 2024, Intel generated $36 billion in product revenue, even excluding the $13 billion from its foundry business. Additionally, investors should remember that companies like GlobalFoundries and United Microelectronics still rely on older chip designs, generating substantial revenue for the semiconductor industry.
With its undervalued stock, strategic position, and continuing strong performance in the semiconductor market, it's easy to understand why a larger acquirer might be interested in Intel. Despite potential challenges, its stock could provide value to investors. While any acquisition would face regulatory review and considerations, such a deal remains a possibility in the current semiconductor landscape.
- Given Intel's current financial situation, a potential investor could see an opportunity for significant profit by investing in the company, taking advantage of its undervalued stock and promising future prospects in the semiconductor market.
- In light of the potential acquisition, the investor might decide to allocate a significant portion of their money into Intel's stocks, as they believe in the company's long-term potential in the U.S. foundry business and its continued strong performance in the semiconductor market.
