Why the Intel share price is my dark horse of 2022

The Intel (NASDAQ: INTC) share price is up 2.8% over the past month to $54 today. Okay, that’s the price it was this time last year. But it’s risen 55% over the past five years. And it spiked to $69 in April. And I think it could be the dark horse of 2022.

The semiconductor shortage

One of the biggest global trade problems right now is the global semiconductor (chip) shortage. Initially this was caused by the rapidly increased demand for computer hardware to aid remote workers throughout the pandemic. And the homeworking transformation seems here to stay. But the shortage is now causing car plants worldwide to slow production. The problem is acute as electric cars are the fastest growing sector in the market, and they require double the chips of a standard carbon-fuelled car. There’s shortages of virtually every electronic device, from mobile phones to PlayStation 5’s. The demand for chips is higher than its ever been. And the industry hasn’t been able to keep up with the increased demand.

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Why is this important for the Intel share price?

Intel is the largest semiconductor manufacturer in the world by revenue. It’s also the developer of the x86 series of microprocessors which are found in almost all personal computers. At first glance, I’d have thought that the heightened demand for chips would have sent its sales and share price soaring. However, I think the Intel share price has remained flat as it has only been able to maintain a steady supply in the face of this vastly increased demand. But next year, I suspect its output will rise, and revenues with it. 

On Thursday, the company will release its Q3 results. Its Q2 results reported adjusted earnings per share of $1.28, some 22 cents higher than analyst expectations of $1.06. Revenue increased 2% year-over-year to $18.5bn. However, competition from Advanced Micro Devices has put a dent in its performance this quarter. It expects an adjusted gross margin in Q3 of 55%, far below the 59.2% seen in Q2. Moreover the average selling price of its chips used in laptops fell 17% year over year. While the demand for semiconductors remains high, the competition for sales is also fierce. Its strategy of price reductions to maintain competitivity is suppressing the Intel share price.

A brighter tomorrow

Intel is developing technology to manufacture significantly smaller chips. This will give it a competitive edge as it will be able to fit more chips onto the same sized area, leading to increased efficiency and performance. In fact, these new Intel 4 chips will increase performance per watt by 20%. It’s also confident that it can increase their computing power another 18% by 2023. 

The company is heading into 2023 with a price-to-earnings ratio of just 12. With a new competitive advantage and huge demand for its product, I don’t think the share price is going to stay where it is for much longer. And this constant demand also makes it a good defensive pick for my portfolio in case of a stock market crash. Of course, AMD won’t just be sitting on the sidelines. But I think it’ll be some time before the competition catches up.

Charles Archer has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Advanced Micro Devices. The Motley Fool UK has recommended Intel and has recommended the following options: long January 2023 $57.50 calls on Intel and short January 2023 $57.50 puts on Intel. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

This post was originally published on Motley Fool

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