Investors may be thinking that Intel (Intel Stock Quote, Chart, News NASDAQ:INTC) looks attractive from here, with its share price down 15 per cent so far in 2020, but there may be better plays in the semiconductor space, says portfolio manager Paul Harris, who likes rival Nvidia (Nvidia Stock Quote, Chart, News NASDAQ:NVDA) instead.
Intel’s share price took a beating earlier this summer when the company released its second quarter 2020 earnings. The chip-maker delivered better than expected top and bottom line results, coming in with EPS of $1.23 per share compared to the consensus expectation of $1.11 per share on revenue of $19.73 billion compared to the Street’s guess at $18.55 billion. Even with the stronger numbers, Intel dropped ten per cent on the quarterly report. (All figures in US dollars.)
Why the gloomy response? In part, the market reaction was chalked up to a less robust growth trajectory from management, whose guidance for the year called for revenue to increase by four per cent. At the same time, Intel said the debut of its 7-nanometer transistors would be delayed due to manufacturing issues, pushing the launch forward by 12 months. The company further said that it may partner with a separate semiconductor foundry for its chips in the future, which would represent a major shift away from
manufacturing for Intel.
It’s that type of failure to hit its targets that has Harris not too keen on Intel.
“The issue with Intel is it’s not an expensive stock but I think they’ve kind of missed in the last little while a few of their objectives,” said Harris, partner at Harris Douglas Asset Management, speaking on BNN Bloomberg on Monday. “And I think it’s going to be very difficult for them.”
While Intel deals with its issues, Nvidia keeps powering ahead, now with a blockbuster move to buy chip designer Arm Holdings in a reported $40-billion deal. Acquiring Arm would give Nvidia a strong licensing fees revenue source along with boosting its chip making capacities.
“[The Arm acquisition] makes Nvidia a very powerful semiconductor company,” said Harris. “So it’s really this big fight that Intel is facing with the rest of the semiconductor industry.”
“Intel missing out on things on the mobile side and on the server side as well,” Harris said.
Harris thinks that overall, the semiconductor industry is going to be a hot button issue vis a vis international trade and relations, notably between the United States and China.
“Semiconductors have become a very important part of how the US thinks about technology. It’s going to be a real battle with China over semiconductors because they really are important to a lot of thing,” Harris said. “It’ll become a priority for any government, whether it’s the Democrats or the Republicans, to look at semiconductors and see how they're going to position them, relative to China.”
“Intel used to be the premier company on this stuff because they used to not only design but they also make them and had their own fabs. So, the bigger issue for Intel has to do with what direction they want to go in and where they want to move their industry into,” Harris said.
“But I think the better play is something like the Nvidia,” he said.
Year-to-date, Nvidia’s share price is currently up 119 per cent.