Intel Corp. shares ended a nine-day winning streak on Friday, raising concerns among investors about the potential impact of a trade war between the United States and China on the company's semiconductor "fab" operations in Asia. Despite this, one analyst questions why more investors are not bullish on Intel, given its advantageous domestic production position.
Intel shares (INTC) closed down 0.5% at $38.01 on Friday after experiencing a 17.2% gain during their winning streak. However, for the shortened week, shares still finished up 3.8%, outperforming the PHLX Semiconductor Index (SOX) which ended the week down 3.2%.
In light of the recent winning streak, Mizuho analyst Jordan Klein raised an important question in a note published on Friday: "How long can long-only managers continue to underweight or avoid INTC?"
Klein argued that despite Intel's past struggles, the company still boasts a market capitalization of $160 billion. Additionally, Intel's stock has seen a year-to-date increase of over 40% and has outperformed Nvidia Corp.'s (NVDA) stock by more than 1,000 basis points in the past three weeks.
The Mizuho analyst also highlighted Intel's 3.2% gain on Thursday, while the PHLX Semiconductor Index experienced a decline of 2%. This comes as China focuses its attention on targeting US companies such as Apple Inc. (AAPL).
Related: Wall Street's Concerns Over Apple's Challenges in China May be Overblown
Klein further emphasized the potential value of Intel owning the largest US semiconductor fabrication plant, as China's actions against US companies increase. He also pointed out that one of Intel's competitors, GlobalFoundries Inc. (GFS), saw a 1.3% increase on Thursday and finished the week up 2.6%.
Related: Intel's Stock Achieves its Longest Winning Streak in Almost 3 Years
Overview of the Semiconductor Industry
The semiconductor industry plays a crucial role in the development and production of advanced electronic devices. Companies like Texas Instruments Inc., Micron Technology Inc., and Intel are key players in this sector. Despite their differences in manufacturing approach, these companies contribute to the production of semiconductors.
Fabless vs In-house Manufacturing
While some companies, like Advanced Micro Devices Inc., Nvidia, and Apple, design their own chips, they rely on third-party fabrication facilities, known as fabs, for manufacturing. Fabless companies generally partner with companies such as Taiwan Semiconductor Manufacturing Co., SK Hynix Inc., and Samsung Electronics Co. to bring their chip designs to life.
Importance of Semiconductor Supply Chain
The global semiconductor supply chain heavily relies on manufacturing facilities in Asia. The COVID-19 pandemic and related shutdowns in China highlighted the potential disruptions that can occur in this industry. Any disturbance in the supply chain has far-reaching consequences for chip-makers.
Intel's Entry into Third-Party Fab Business
Intel, traditionally known for its in-house manufacturing, has recently entered the third-party fab business through Intel Foundry Services. Although the company has not yet disclosed any prominent customers for this new venture, it marks a significant shift in their strategy.
Investor Sentiment and Analysis
Intel's management and stock performance face skepticism from the investor community. However, some hedge funds are gradually buying into the rally, viewing it as a safe investment option, especially if the U.S.-China trade war escalates. Out of the 44 analysts covering Intel, nine have buy ratings, 28 have hold ratings, and seven have sell ratings. The average price target for Intel's stock is $36.91.
Intel aims to make a comeback in cutting-edge technology by 2023. Additionally, the company anticipates significant growth in the field of artificial intelligence next year, providing a surprise boost to its data-center segment.
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