Intel Corporation (NASDAQ:INTC) has shown resilience against AMD. Strong fundamentals and a 3% dividend yield make it a safe long term bet.
Shares of Santa Clara, California-based Intel Corporation (NASDAQ:INTC) have barely moved this year. However, with new developments under way, which we'll discuss at length below, the stock may be poised to move higher in the medium term. Meanwhile, Intel offers a dividend yield of close to 3%, which is a good incentive to hold onto the stock. Intel has showed resilience in the face of growing competition from Advanced Micro Devices Inc (NASDAQ:AMD). Intel's second quarter numbers show that it hasn't been dented as much as some expected. However, investors looking to enter the stock now might want to wait a bit, as the stock seems overbought right now.
Intel Is Entering The Self Driving Cars Race.
On Wednesday, Intel announced that it plans to build a fleet of 100 cars with an aim to test its self-driving technology. This is Intel's attempt to get ahead of competition from rivals like Qualcomm and Nvidia. The cars Intel plans to build will be highly automated level 4 vehicles, putting them just short of fully autonomous cars. One notch, to be specific. However, these cars will be way ahead of autopilot features that are already on mass production vehicles.
Intel plans to conduct tests in the U.S.A, Europe and Israel, to leverage its $15 billion acquisition of Mobileye, which it closed this week. While Intel makes the chips used in many cars, Mobileye builds technology that enables machine vision, or the ability to 'see'. Intel now owns just under 85% of Israel-based Mobileye, and combined, the two companies plan to build technology that could be employed by cars scheduled to hit the road by 2018.
Even as the likes of Qualcomm and Nvidia continue to invest heavily in the autonomous driving space, Intel wants a foot in the door, and understandably so. Whichever chip company manages to leverage this market, will stand to gain immensely. And if growth projections for self-driving cars are anything to go by, there's likely to be enough place for more than one company in any case.
Intel Has Resisted AMD's Charge.
Meanwhile, Intel is also poised to launch a successor to its 7th-generation Core processors. The chip designer has announced that it will premiere its 8th-generation Core CPUs on August 21st, which is just days away. What's been impressive is Intel's resilience in the face of growing competition from AMD. When Intel reported its second quarter earnings, there was apprehension among some, that the results would reflect competitive pressures following AMD's slew of CPU launches. AMD launched its Ryzen 7 line up of CPUs last quarter, followed by its Ryzen 5 chips soon after. And if the initial response is anything to go by, AMD's new offerings seemed to be gaining popularity quite quickly. However, Intel's second quarter earnings showed more than expected strength.
Far from weakening under the onslaught, Intel emerged stronger, with record revenue of $14.8 billion, up 9% YoY. Growth would have been up by 14% if not for the divestment of the Intel Security Group. And while the increased competition from AMD was expected to hurt profitability, Intel actually managed to expand its gross profit margin by about 2.7%, to touch 61.6%, while earnings per share grew by a healthy 22% YoY. What's more, Intel increased its full year guidance, which was the icing on the cake.
Intel Stock - Strong Fundamentals And Dividend Yield.
Intel stock has strong fundamentals. It's operating margin stands at over 26%, with a net profit margin of over 20%. The company generates healthy operating cash flows, at 1.7X net income, and has a free cash flow margin of over 13%. The debt is manageable, and the company has a return on equity of 19.5%, and a return on invested capital of 15.6%. What's more, Intel stock trades at a PE of 12, which means it's not very expensive. Last but not the least, at its current price, Intel's dividend yield is approaching 3%, which isn't a bad incentive to hold onto the shares if you believe in the long term outlook for the stock. Intel's stock performance suggests that an uptick may be in store. Even as semiconductor companies have had a great year, Intel shares haven't budged. In fact, the Year To Date (YTD) return is less than 1%, which probably suggests that investors have underestimated the company.
That said, Intel shares have entered overbought territory as per the Relative Strength Index (RSI), and the current reading is just over 70, which shows that the stock is overbought. The stock price is also not far from the upper Bollinger Band, suggesting that the stock is close to the overbought territory as per this indicator. Buying at lower levels will not only make the entry safer but will also increase the dividend yield on offer.
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