Will Data-Centric Strength Boost Intel (INTC) Stock In 2020?

Intel (NASDAQ:INTC) is expected to benefit from growth in data-centric business, driven by robust adoption of high-performance products, including Xeon Scalable processors and connectivity solutions through 2020.

Growing clout of latest high performance Cascade Lake family of Xeon processors integrated with deep learning tools to accelerate AI processes is a key catalyst.

Further, the Cascade Lake Xeon processors integrated with Intel’s Optane DC Persistent Memory solution are also witnessing rapid adoption. Notably, the solution has been selected by Oracle (NYSE:ORCL) to power its latest Exadata platform.

In fact, major cloud vendors, including Amazon’s (NASDAQ:AMZN) Amazon Web Services, Alibaba (NYSE:BABA) and Alphabet’s (NASDAQ:GOOGL) Google, are utilizing Cascade Lake Xeon processors to deploy complex instances. Moreover, companies like TU Darmstadt and BP (LON:BP) opted for 9200 series of highest performance Xeon Scalable platform, to deploy complex workloads.

Additionally, Intel is investing in field programmable gate array (FPGA) for acceleration and memory to reduce latency and increase speed. Acquisitions of Omnitek and Barefoot Networks remain crucial in this regard. This is enabling the company to develop custom solutions for big players. Notably, the chipmaker is shipping the first 10nm process nodes-based Agilex FPGAs.

Moreover, the launch of new 10 nm technology-based AI chip, Springhill, holds promise. The company is also making advancements in the IoT space, courtesy of product introductions and tie-ups. Strength in transportation and retail applications are expected to drive the Internet of Things Group segment in 2020.

Considering PC-centric business, launch of new 10th Gen Intel Core mobile PC processors (dubbed "Comet Lake") in early 2020 is expected to boost the top line. Moreover, the company is expected to benefit from adoption of latest Xeon W and X-Series processors for high-end desktop market and workstations.

Latest Developments Hold Promise

Intel recently concluded the divestiture of majority of its smartphone modem business to Apple (NASDAQ:AAPL) for $1 billion. We believe that the divestiture will aid the chipmaker in evaluating prospects in 5G for IoT and data center, considering the prospects of the technology in high-growth domains.

Further, acquisition of Israel-based, Habana Labs, is anticipated to augment Intel’s portfolio by adding a high-performance training processor family and standards-based programming environment to cater to AI workloads. Markedly, Habana’s Gaudi AI Training Processor enables efficient and flexible system scale-up and scale-out. Further, Habana’s Goya AI Inference Processor is exhibiting admirable inference performance including throughput and real-time latency in a highly competitive power envelope. Such upsides are likely to strengthen Intel’s presence in the AI space in 2020 and beyond.

New product roll outs in supercomputing and quantum computing verticals deserve a special mention. Notably, Intel’s processors have been implemented in 470 of the world’s TOP500 supercomputers.

Encouraging Broader Market Insights

Markedly, semiconductor sales have improved sequentially in August, September and October, indicating a recovery in the chip market. Per World Semiconductor Trade Statistics, global semiconductor sales are expected to increase 5.9% in 2020 against an estimated decline of 12.8% in 2019. This, in turn, will favor Intel’s prospects.

Moreover, demand for memory chips is likely to keep rising in 2020, primarily from datacenter customers. Additionally, the excess NAND and DRAM inventory, which had limited growth for the most part of 2019, is expected to normalize, thereby improving average selling price.

Also, accelerated deployment of 5G and increasing proliferation of IoT devices, is expected to act as a tailwind.

Further, per the recent phase one deal, the U.S. government has agreed to suspend tariffs on Chinese goods worth $160 billion, which included cell phones, laptop computers, toys and clothing. This is expected to aid Intel commence 2020 on an encouraging note.

Checking the Right Boxes

Intel has a Zacks Rank #2 (Buy) and a VGM Score of A. Per the Zacks’ proprietary methodology, stocks with the favorable combination of either a Zacks Rank #1 (Strong Buy) or 2 and VGM Score of A or B, offer good investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.

Markedly, the chipmaker raised 2019 guidance during its third-quarter earnings conference, projecting revenues of $71 billion and non-GAAP earnings to be $4.60 per share. The Zacks Consensus Estimate for revenues is currently pegged at $70.96 billion. Meanwhile, the consensus for earnings increased 5.5% over the past 60 days to $4.61.

Moreover, Intel surpassed estimates in the trailing four quarters by 10.21%, on average. The Zacks Consensus Estimate for 2020 earnings increased 6.3% to $4.72 per share over the past 60 days.

Although Intel stock is currently underperforming the industry on a year-to-date basis, the aforementioned strong fundamentals indicate an upside potential in 2020. Notably, shares of Intel have returned 24.9% compared with industry’s rally of 40.4%.



Nonetheless, leveraged balance sheet, ongoing CPU shortages and intense competition from AMD and NVIDIA (NASDAQ:NVDA) remain concerns.

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