Is It Too Late to Buy Intel Stock?

Intel (NASDAQ: INTC) is having a terrible year so far. Shares of the chip specialist have lost nearly a third of their value as of this writing, which is in stark contrast to the 38% gain in the PHLX Semiconductor Sector index, but a closer look at the recent stock price action indicates that the stock may be gaining some momentum.

Shares of Intel have jumped almost 12% this month, outperforming the PHLX index. The stock received a nice shot in the arm and jumped more than 6% on July 8 following positive Wall Street coverage. Let's see why that was the case and check if it's too late for investors to buy this semiconductor stock following its latest surge.

Artificial intelligence is expected to boost Intel's growth

Melius Research analyst Ben Reitzes believes Intel could be a top artificial intelligence (AI) pick in the second half of 2024. The analyst sees Intel benefiting from the growing demand for AI-enabled personal computers, which could power the growth of its client business.

The good part is that Intel is already benefiting from the turnaround in the PC market this year. Its revenue from the client computing group (CCG), which includes sales of processors used in PCs, laptops, and workstations, jumped an impressive 31% year over year in the first quarter of 2024 to $7.5 billion. Intel generated total revenue of $12.7 billion in Q1, a 9% increase from the prior-year period.

So the CCG business played a central role in boosting Intel's top line, as it accounted for 59% of its revenue. It's worth noting that Intel is expecting to ship more than 40 million AI PC processors in 2024. That seems like an ambitious number, as market research firm Canalys is projecting 48 million AI PCs could be shipped this year.

Assuming Intel can get close to its AI PC processor shipment forecast, it could control a major share of this market that's expected to grow at a healthy pace. Canalys is estimating AI PC shipments to increase at an annual rate of 44% over the next five years, which means Intel is sitting on a secular growth opportunity.

More importantly, the robust demand for Intel's AI PC processors indicates that it is indeed benefiting from this space. On its April earnings conference call , CEO Pat Gelsinger remarked: "Our Core Ultra ramp, led by Meteor Lake, continues to accelerate beyond our original expectation with units expected to double sequentially in Q2, limited only by our supply of wafer-level assembly, improving second half Meteor Lake supply and the addition of Lunar Lake and Aero Lake later this year will allow us to ship in excess of our original 40 million AI PC CPU target in 2024."

That remark suggests that the demand for Intel's AI-capable Core Ultra processors is exceeding supply. Gelsinger points out that Intel is focused on improving the supply of its AI CPUs in the second half of the year, so there's a good chance its CCG business will keep getting better in 2024 and beyond. After all, Canalys is estimating 150 million AI PC shipments next year, and a stronger supply chain should ideally allow Intel to capture a bigger share of this opportunity.

Accelerating growth could be a reason to buy the stock

Analysts are expecting Intel to deliver $55.9 billion in revenue this year. That would be a 3% increase from the previous year. However, as the following chart tells us, Intel's top-line growth is set to get better over the next couple of years.

INTC Revenue Estimates for Current Fiscal Year data by YCharts

Even better, analysts are expecting a nice improvement in Intel's bottom line as well from last year's level of $1.05 per share.

INTC EPS Estimates for Current Fiscal Year data by YCharts

What's more, Intel's bottom line is projected to increase at an impressive annual rate of almost 40% over the next five years, and the momentum of the company's client computing business indicates that it could indeed achieve the same. It's worth noting that Intel posted a terrific turnaround in the bottom line in Q1, with adjusted earnings of $0.18 per share, compared with a loss of $0.04 per share in the same quarter last year.

Given that Intel is now trading at 30 times forward earnings, it isn't too late for investors to buy this semiconductor stock , as it's trading at a discount to the U.S. technology sector's average earnings multiple of 48, especially considering AI could drive solid growth in the company's bottom line in the long run.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a disclosure policy .