Day: September 7, 2024

Intel (NASDAQ: INTC) stock is sinking again in Friday’s trading. The chip company’s share price was down 2.1% as of 3:10 p.m. ET, according to data from S&P Global Market Intelligence.

Following disappointing August jobs numbers released the U.S. Labor Department today, the stock market is seeing an uptick in bearish sentiment — and Intel is part of the pullback. Recent reports about the company’s fabrication business and the possibility that it’s eyeing selling off other parts of its business are also weighing on the chipmaker’s valuation.

Are investors giving up on the Fed’s “soft landing?”

Today’s jobs report showed that the U.S. economy added 142,000 jobs in August. This performance missed the average Wall Street estimate of 160,000 new job additions, but the shortfall is actually even more significant than it appears on a surface level. Reacting to declines in U.S. manufacturing and other bearish indicators, analysts and economists had already begun guiding jobs estimates for last month downward.

The disappointing jobs numbers added to fears that the economy is on track for a recession. The Federal Reserve will likely cut interest rates at its meeting starting on Sept. 17, but investors are feeling increasingly uneasy about the overall macroeconomic backdrop. While the Fed has been trying to engineer a “soft landing” that sees inflation tamed and recession avoided, investors are now worried that economic contraction is on the horizon. A weakening macro outlook is weighing on stocks today, but that’s not the only bad news for Intel shareholders.

Uncertainty surrounds Intel’s outlook

With its Q2 report earlier this month, Intel sent signals that the company was in disarray. Quarterly margins and guidance came in significantly worse than expected, and the company announced that it was pursuing major cost-cutting and restructuring initiatives that would involve laying off 15% of its workforce and other big moves.

According to a report published by Bloomberg after the market closed yesterday, Intel is looking into selling part of its stake in Mobileye — its machine-vision-technology unit. The chipmaker is reportedly interested in selling as much of 88% of its equity position in Mobileye.

Reuters then reported this morning that Qualcomm was looking at buying part of Intel’s chip design business. Qualcomm is reportedly particularly interested in Intel’s client PC segment, but all of the design units are supposedly being looked at for potential acquisitions.

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Meanwhile, other reports have suggested that Intel was looking into spinning off its chip fabrication business — and shareholders have had to contend with bad news on the fab front. According to a report from Tom’s Hardware, Intel will no longer be using its 20A process node for its consumer Arrow Lake processors. Instead, the company is expected to use a node from Taiwan Semiconductor Manufacturing. This news came on the heels of a report that Broadcom had evaluated using Intel’s 18A node but opted not to go through with it following unsatisfactory test results.

With today’s pullback, Intel stock went as low as $18.64 per share — its lowest price in the last 10 years. While shares could be tempting at current levels, there’s little visibility as to what path forward the company will take. Recent reports suggest the company itself may be unsure of what its strengths are in the highly competitive chip market.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Qualcomm and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and Intel and recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.

Why Intel Stock Is Falling and Hit a New 10-Year Low Today was originally published by The Motley Fool

The rapid and accelerating adoption of artificial intelligence (AI) has been gathering momentum since early last year. The clearest evidence of these secular tailwinds can be found in the list of the world’s largest companies when measured by market cap. Indeed, 7 of the world’s 10 most valuable companies are arguably pioneers in the realm of AI.

Topping the charts are three of the world’s leading purveyors of technology. Apple takes the top spot at $3.4 trillion, and Microsoft and Nvidia aren’t far behind with market values of $3 trillion and $2.6 trillion, respectively.

With a market cap of roughly $832 billion (as of this writing), Taiwan Semiconductor Manufacturing (NYSE: TSM), often referred to as TSMC, might seem like a dark horse to join this exclusive fraternity, but the writing is on the wall. New use cases for generative AI are being discovered at a breakneck pace, making the semiconductors capable of these advanced calculations indispensable. As the largest foundry in the world, TSMC seems a shoo-in to join the ranks of this prestigious club.

Want chips with that?

TSMC has been quietly building its legacy for decades but has suddenly burst into the limelight. The company bills itself as the “world’s largest and best semiconductor foundry,” making it a critical player in the paradigm shift to AI.

Because AI can only be performed using the most cutting-edge semiconductors, TSMC is the leader in the field. Its customer list reads like a veritable “who’s who” of AI, including Nvidia, Arm Holdings, Advanced Micro Devices, Broadcom, Apple, and many more.

Furthermore, the shift to AI has realigned TSMC’s business over the past couple of years. While processors used in smartphones were once its largest platform, high-performance computing (HPC) — which includes AI — now accounts for more than half of TSMC’s revenue, representing 52% of sales.

Business is booming. Revenue grew 14% to $20.8 billion in the second quarter, while earnings per share (EPS) of $1.48 jumped 30%. Management is expecting the company’s good fortune to continue.

TSMC’s forecast is calling for second-quarter revenue of $22.8 billion at the midpoint of its guidance, or growth of about 32%. That forecast could end up being conservative. In July, the company reported revenue growth of 45% year over year, far ahead of management’s outlook.

The path to $1 trillion

TSMC occupies a unique place in the AI ecosystem. Since its processors are prized by the biggest players in the space, it occupies the pole position in the rapid adoption of generative AI — which has made headlines since early last year. Additionally, TSMC’s accelerating revenue growth provides the clearest proof the company is up to the task. It also suggests TSMC could easily ascend to the ranks of trillionaires.

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According to Wall Street, TSMC is poised to generate revenue of $87.38 billion in 2024, giving it a forward price-to-sales ratio (P/S) of roughly 9.5. Assuming its P/S remains constant, TSM would have to grow its revenue to roughly $210 billion annually to support a $2 trillion market cap.

The company is forecasting growth to increase to “slightly above mid-20%” for 2024, and Wall Street is already seemingly on board, forecasting revenue growth of 27% and 26% in 2024 and 2025, respectively. If the company can clear those relatively low benchmarks, it will likely achieve a $2 trillion market cap by early 2029. However, given the accelerating adoption of AI, it could cross that threshold even sooner.

Another catalyst for TSMC is the potential represented by AI-powered smartphones, which could provide the catalyst for an accelerated upgrade cycle. As the leading provider of smartphone processors, TSMC would be an obvious beneficiary.

Estimates regarding the ongoing adoption of AI suggest that TSMC’s future is bright. Generative AI is expected to add between $2.6 trillion and $4.4 trillion to the global economy annually over the next 10 years, according to global management consulting firm McKinsey & Company. Even that could end up being conservative as estimates continue to climb as new applications for AI are uncovered.

Finally, at 28 times earnings, TSMC’s valuation is attractive, offering investors a compelling way to invest in the paradigm shift represented by AI.

Should you invest $1,000 in Taiwan Semiconductor Manufacturing right now?

Before you buy stock in Taiwan Semiconductor Manufacturing, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Taiwan Semiconductor Manufacturing wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $650,810!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of September 3, 2024

Danny Vena has positions in Apple, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Meet the Supercharged Growth Stock That Could Join Apple, Microsoft, and Nvidia in the $2 Trillion Club by 2029 was originally published by The Motley Fool