Intel Stock Is a Speculative buy Because of This 1 Factor

Globe and Mail

4 days ago

The decline of Intel (NASDAQ: INTC) and the numerous failed efforts to recover its leadership in the chip market have undoubtedly frustrated many investors. The company has hired and dismissed several CEOs who have tried and failed to return Intel to competitiveness. So profound are its missteps that the stock trades at levels it first reached in 1997.
The current CEO, Lip-Bu Tan, is the latest leader to try to get Intel back on track. Although Cadence Design Systems prospered under his leadership, succeeding at Intel is far from guaranteed. Nonetheless, risk-averse investors have at least one compelling reason to buy a speculative position in Intel, which investors should consider when deciding whether to buy the stock.
The reason to buy Intel
In short, investors should buy Intel because of its valuation.
In this case, the "valuation" does not come from the metrics one might initially assume, like the price-to-earnings (P/E) ratio. Falling profits and the recent turn back to losses led to a spike in the earnings multiple, taking it to 104. Due to an expected return to profitability, its forward P/E ratio is 66, but that does not make the stock inexpensive.
The same goes for Intel's price-to-sales (P/S) ratio of 1.6. With analysts expecting revenue to fall by 5% during 2025, it will probably take more than a low sales multiple to convince investors to buy.
Instead, investors need to look at the book value and, by extension, the price-to-book (P/B) ratio. In the first quarter of 2025, Intel reported a stockholders' equity of $106 billion, which is what Intel would net if it decided to liquidate its assets and cover its liabilities.
However, when multiplying Intel's outstanding shares by the stock price, it adds up to a market cap of $88 billion. That translates into a P/B ratio of 0.88. Such a price means that if the company liquidated, shareholders could presumably create $18 billion by that action.
Making sense of Intel's book value
Indeed, Intel has no plans to liquidate, meaning it will have to eventually unlock some of its intrinsic value to drive investor returns. This is difficult because the loss of its technical lead makes it more of a commodity chip business. Such stocks tend to have difficulty attracting a premium and outperforming the S&P 500, leaving cutting-edge stocks like Nvidia to attract premium pricing.
Nonetheless, Intel still holds competitive advantages often overlooked by today's investors. For one, no company owns more foundries on U.S. soil than Intel. The government has pushed for domestic manufacturing, and Intel is investing in the most advanced equipment sold by ASML, which is necessary to make the world's most advanced chips.
Additionally, it remains a force in the industry despite losing its title as the world's largest semiconductor company many years ago. In the first quarter of 2025, Intel generated $12.7 billion in revenue. Although that fell slightly from year-ago levels, that is well above the $7.4 billion in revenue generated by Advanced Micro Devices, making it a major industry player. Thus, if it finds a way to close its technical gap and draws more customers to its foundries, Intel could stage a comeback.
Investing in Intel stock
Despite its numerous challenges, Intel stock is still a speculative buy for risk-averse investors. Admittedly, Lip-Bu Tan's attempt to transform Intel will take years to achieve, and that success is not guaranteed.
However, even if Intel stock does not deserve a premium, the fact that it sells for well under its book value indicates the stock is oversold. Moreover, Intel remains influential in the semiconductor industry, and its foundry footprint could become valuable in the shifting political environment.
Ultimately, Intel is unlikely to return to industry leadership. Still, as well-positioned as it is in the semiconductor industry, the ability to buy shares below book value significantly increases the odds that investors can profit from this stock.
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Will Healy has positions in Advanced Micro Devices and Intel. The Motley Fool has positions in and recommends ASML, Advanced Micro Devices, Cadence Design Systems, Intel, and Nvidia. The Motley Fool recommends the following options: short May 2025 $30 calls on Intel. The Motley Fool has a disclosure policy.