In recent weeks, two reports that bode very well for Intel (NASDAQ:INTC) stock have surfaced. First, the company reported its upcoming Gaudi 3 AI chip is in line with my previous predictions and is generating a great deal of demand. Secondly, former U.S. President Donald Trump made comments that indicated he would support Intel’s efforts to become a major manufacturer of chips. Trump looks well-positioned to return to the White House in January.
In light of these points, I continue to view Intel stock as greatly undervalued and recommend that investors buy its shares.
Demand for Intel’s Gaudi 3 AI Chip Is Strong
On July 12, Intel Chief Technology Officer Greg Lavender reported there is “lots of demand” for Gaudi 3 AI chip. The hardware, which was expected to have become available to major server makers last quarter, is “50% on average better (at) inference and (offers) 40% on average better power efficiency than (Nvidia’s H100 AI chip) — at a fraction of the cost,” Intel reported in April. However, it’s worth noting that Nvidia’s (NASDAQ:NVDA) vastly improved AI chips are expected to arrive this fall.
But as I’ve reported previously, Intel as of April had already recruited many impressive customers for the Gaudi 3 chips. Among them are IBM (NYSE:IBM), NielsenIQ, German conglomerate Bosch and Bharti Airtel, a major Indian telecom company.
And now the comments earlier this month by Intel’s CTO indicate the chip has been selling quite well. He stated Gaudi 3 can help the company become the world’s second-largest seller of AI chips. It would eclipse its archrival Advanced Micro Devices (NASDAQ:AMD), which expects to sell $4 billion worth of AI chips in 2024.
In an April forecast that now seems extremely conservative, Intel forecast Gaudi 3 would generate just $500 million in revenue in 2024.
Consequently, the Street expects the company to sell around $1 billion of AI chips next year. Lavender, on the other, appears to be forecasting around $5 billion of revenue for 2025. As that disparity becomes known and internalized by investors, Intel stock is likely to rally a great deal going forward.
Trump’s Comments Bode Well for Intel Stock
On July 17, the former president said that Taiwan took “about 100%” of America’s chip manufacturing business. Additionally, he asserted that Taiwan should pay America to defend it from China.
Clearly, Trump harbors some resentment towards Taiwan and its chip makers for taking over the vast majority of the semiconductor manufacturing from American firms. With Trump looking poised to regain the White House, he is likely to continue the Biden administration’s policy of subsidizing Intel. And given Trump’s apparent passion for the issue, his administration may even assist Intel more than Biden has.
Of course, such developments would be very positive for Intel and Intel stock.
Intel has said that it already has six major customers for its chip-manufacturing business, including Microsoft (NASDAQ:MSFT). Moreover, Nvidia (NASDAQ:NVDA) has expressed interest in utilizing Intel’s chip-manufacturing services. The Pentagon earlier this year also gave Intel a Phase 3 certification. According to CEO Pat Gelsinger, the news “will lead to additional federal aerospace and defense customers” for the company’s manufacturing unit.
The Bottom Line on Intel Stock
The official forward price-to-earnings ratio of Intel stock is 32.5 times. But because analysts are likely greatly underestimating the profits that will be generated by the firm’s AI chips, the real P/E ratio is likely much lower. Given the firm’s multiple strong, positive catalysts, the shares are greatly undervalued.
On the date of publication, Larry Ramer held a long position in INTC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.