Here’s How to Play Intel in its Race Against Nvidia and AMD

Semiconductor company Intel  (INTC) – Get Intel Corporation Report looks like it’s moving in the right direction, but the company is facing several challenges while it is falling behind its competitors, argues Stephen “Sarge” Guilfoyle.

The company not only has a large debt load, but is also increasing its capital expenditures to boost its revenue.

“Intel is spending a ton of dough, and is probably going someplace that we wish an American company would have gone a few years ago,” Guilfoyle wrote in a recent Real Money Pro column. “That said, the load is heavy, and the path is strewn with debris.”

The company has long-term debt that has declined to $33.5 billion, while its net cash position decreased to $28.4 billion. Intel has four massive projects lined up, including spending $20 billion in a large new manufacturing facility near Columbus, Ohio that will include two fabrication plants. Intel also plans to spend $20 billion on a foundry building project in Arizona and plans to build a smaller facility in New Mexico.

The increase in capital expenditures is just one of the concerns for investors. Intel just acquired Tower Semiconductor  (TSEM) – Get Tower Semiconductor Ltd Report, an Israeli manufacturer, for $5.4 billion in cash.

“Investors, if they are to stay investors, must accept that expenses are going to be high, and margin along with earnings will be pressured,” he wrote.

One roadblock that Intel is facing is relying heavily on its client computing group, which accounted for $10.1 billion of revenue, but fell by 7% from the year ago period. Declining PC sales are also another factor. The company is also falling behind its competitors, Guilfoyle said.

“Meanwhile, the firm’s bread and butter business is in decline, and the firm places behind its key competitors for the high businesses of 2022,” he wrote. “Intel is here to stay, but the firm is a long way from competing effectively against either Nvidia  (NVDA) – Get NVIDIA Corporation Report or Advanced Micro Devices  (AMD) – Get Advanced Micro Devices, Inc. Report for the market’s sweet spot, or competing with Taiwan Semiconductor  (TSCM)  and becoming America’s foundry. The day will come. You have time.”

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