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Don’t Write Off Intel Just Yet: The Bull Case for INTC Stock

Wednesday’s trading session provided some serious doubt for investors in Intel (NYSE:INTC) stock after the Pentagon withdrew its $2.5 billion chip grant for the company. The decline brought INTC stock down 3%, and has some investors questioning whether this is a chip stock to buy right now.

This decision could reduce federal funding for Intel and prompt the company to seek additional support from the Commerce Department. Intel is also pursuing incentives exceeding $10 billion from the CHIPS and Science Act. So, this ruling isn’t great.

Don’t completely avoid Intel because of this. The company demonstrates significant progress in chip development, outperforming competitors in recent Stability AI tests.

Despite Nvidia’s (NASDAQ:NVDA) speed advantage in image processing, Intel’s Gaudi 2 AI chip proves faster in AI creation tasks. With Intel’s chips showing promise and attractive stock valuation, investors may actually want to consider buying INTC shares on this dip.

Here’s the reasoning behind this bull case on a chip giant.

Withdrawal of Chip Grant

Bloomberg reported the Pentagon’s funding cut to Intel, potentially leading the chipmaker to seek more from the Commerce Department. President Biden’s signed package, allocating $3.5 billion for Intel, aimed at advanced semiconductors for military use. 

Intel, pursuing CHIPS Act funds and a $1 billion government contract, is searching for growth in its Intel Foundry to enhance U.S. semiconductor competitiveness.

While progress still needs to be shown, there’s certainly a lot to like about Intel’s geographic positioning relative to its peers.

Thus, this is a chip stock with some serious government spending tail winds that haven’t dissipated just yet.

Boardroom Shakeup

Stacy Smith, former CFO of Intel Corp, plans to rejoin as a board member, a key move amid Intel’s comeback strategy.

Smith, now the executive chairman of Kioxia Corp, brings extensive experience after leaving Intel in 2018. His return strengthens Intel’s board as it aims for technological leadership in the chip industry.

Pat Gelsinger, Intel’s CEO, welcomed former CFO Stacy Smith back, praising his past contributions. Chairman Frank Yeary highlighted Smith’s expertise in semiconductors.

With Gelsinger’s leadership, Intel is more determined to bring 100 million PCs by 2025. This shows an overall target of 25% worldwide market share.

Investors will be rewarded if the company leads the U.S. chip sector’s growth. These recent C-Suite moves will take time to show results, but I think these moves are broadly positive for the company.

Insiders Are Bullish

Over the past year, we’ve seen some notable insider buying activity for INTC stock worth considering. Director Lip-Bu Tan made Intel’s largest insider purchase, buying $2.5 million shares at $37.92 each.

While insider buying is positive, this occurred below the current price of $44.00. Intel insiders bought more shares than they sold over the past year, indicating confidence.

Intel insiders, including CEO & Director Patrick Gelsinger, invested notably in company shares, with Gelsinger purchasing $250k worth without selling.

This suggests confidence among insiders. While insider ownership at 0.05% is lower than other companies, it still indicates alignment with shareholders.

INTC Stock Is a Buy

Intel’s server chip division has thrived amid the AI surge, commanding record Xeon chip prices. Newly released Xeon chips feature integrated AI acceleration across all cores, heightening efficiency and cutting expenses. 

The company consistently exceeded quarterly targets, aiming for $3 billion in savings by 2023, showcasing resilient operational strength and positioning it as a premier blue-chip investment.

If these results can continue, the company’s management team gets its strategic focus in line, and Intel receives the grants it expects. This is a stock with plenty of upside potential, given its current valuation. Of course, a number of things have to go right for this thesis to play out. But that’s what makes markets.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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