In global stock markets recently, growth stocks have taken a beating as investors have “rotated” into value stocks. Many of these high-growth names can be found in the technology sector.
However, there can also be value in the technology sector, for investors willing to look hard enough.
I don’t usually use the term “bet” when it comes to investing. But when it comes to Intel Corporation (NASDAQ: INTC), the semiconductor giant, I think it requires a giant leap of faith to believe in its turnaround plan.
Personally, though, I’m impressed by the bold comeback plan laid out by its new CEO, Pat Gelsinger. So, here are five reasons why I would place money on Intel to pull off its turnaround plan.
1. Pat Gelsinger
Whenever I invest in a company, I always look at the track record of the leader driving the change. And I think Intel may have found its “Nadella” in Pat Gelsinger.
(For those of you who don’t know, Microsoft Corp’s (NASDAQ: MSFT) recent turnaround and successful acceleration into the cloud space happened after the appointment of Satya Nadella as their CEO).
Gelsinger was a veteran at Intel and the lead architect of Intel’s legendary x86 processor.
He was the youngest Vice President in Intel’s history and became the company’s CTO in 2001, leading key technology developments.
His departure in 2009 and subsequent appointment as CEO of VMWare Inc (NYSE: VMW) has given him the software exposure required to lead the company.
In fact, this had led him to rethink Intel’s software strategy and adopt a “software-first” approach that aims to get Intel’s mojo back.
2. Seizing the foundry opportunity
Intel has laid out its plan to overtake its competitors in manufacturing semiconductors by 2025, becoming the most advanced and only semiconductor fabless and fabrication company.
Intel will design custom CPUs for its customers, allowing its core x86 architecture to be integrated with optional ARM and RISC-V CPU cores and other IPs.
In the past, the x86 architecture was only licensed to a few companies but with these changes, this means that Intel will license the x86 architecture to other companies too.
3. Support from the government
As most advanced semiconductors are produced in Taiwan and South Korea, this has exposed Western countries to supply chain risk of a critical component.
The geopolitical tensions, including Taiwan and Ukraine, have led many countries and companies to rethink their supply chains especially, for goods that are so crucial to economies, such as semiconductor chips.
In US, support for the CHIPS Act is growing. The US$52 billion bill that aims to incentivise companies to manufacture semiconductors inside the US will benefit Intel as the company aims to build US$20 billion fabrication plants in both Arizona and Ohio.
Aside from that, Intel is also investing as much as €80 billion (US$89 billion) into its capacity in the European Union over the next decade.
The company’s initial €17 billion investment will be for a fabrication complex in Germany. While it has not been finalised, Germany is reportedly looking to grant Intel around US$5.5 billion.
4. Collaboration with competitors
One of the key aspects of Pat Gelsinger’s leadership is the collaboration with competitors. The usage of foundry capacity is part of Intel’s IDM 2.0 strategy for silicon wafer capacity.
This was necessary in part due to the delays in its own processes.
So, while Intel is competing with Taiwan Semiconductor Manufacturing Co Ltd (NYSE: TSM) (TPE: 2330), also known as TSMC, on the Intel Foundry Services (IFS) business, Intel is also an important customer for TSMC.
Similarly, Intel will compete fiercely against NVIDIA Corporation (NASDAQ: NVDA) in both the GPU and AI segments, yet both companies will also continue to collaborate.
In fact, NVIDIA’s CEO, Jensen Huang, has commented on Intel’s foundry offering during a Q&A in its recent investor day meeting, indicating an interest to use Intel’s fab.
5. Massive digitalisation trend
The massive shift towards the digital economy and cloud computing will benefit Intel. Furthermore, the lack of chips is an indication of the robust demand.
Electric vehicles (EVs) are more complex and will require even more semiconductor components than traditional cars.
Meanwhile, the rise of the Metaverse and the ongoing shift towards 3D worlds will also benefit Intel.
It is worth noting that while Intel is playing catch-up now, it still has the industry-leading 2.5D and 3D packaging and chip capabilities.
Time to buy is now but it comes with risks
Intel is still in the early stages of its transformation and, like I said, it’s a bet that this turnaround plan will materialise under Pat Gelsinger.
The company has taken steps in the right direction over the last year – its massive investment of US$20 billion in Arizona, US$20 billion in Ohio, US$7 billion in Malaysia and €33 billion in Europe.
There is also massive progress on its semiconductor development as Intel’s Alder Lake PC chips are now on par with the latest chips from Advanced Micro Devices Inc (NASDAQ: AMD), also known as AMD.
But it’s not without risks given the competition that it is facing. TSMC, NVIDIA, AMD and even Samsung Electronics Co Ltd (KRX: 005930) (LSE: BC94) are all moving forward with their own expansion strategy.
Intel’s strength on the software front could give it an edge but the turnaround efforts are expected to take multiple years. If you believe in Pat and the broader Intel story, then it’s time to buckle up. You’re in for a ride!
Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.
Billy is passionate about the capital market and believes in investing for the long haul. Prior to this, he was an economist at RHB Investment Bank, covering Thailand and Philippines market. He also worked as a financial journalist at The Edge Malaysia and has experience working with an asset management firm. Aside from the capital market, Billy loves a good conversation over a cup of coffee, is a fitness enthusiast and a tech geek.