Intel looks cheap – but there is a big risk

Intel’s share price has declined by over 50% over the last year, and it is trading at a very low valuation, but it comes with significant risk.

Intel Corporation is a multinational technology company that develops and produces computing devices.

The company is best known for developing microprocessors – known as chips – used in personal computers. It is the largest semiconductor chip manufacturer in the world by revenue.

Intel was founded in 1968 by Gordon Moore and Robert Noyce and is headquartered in California. It was listed on the Nasdaq in 1971 and today has a market cap of $106.4 billion.

Intel’s share price delivered exceptional growth, with an annualised growth of 12.3% from 2009 to its 2021 peak of $66.8.

It has come under significant pressure in 2022, falling to $25 in October, a price last seen in 2014.

Intel share price

Intel was severely affected by the strict quantitative tightening and contractionary monetary policy.

It has also faced other challenges that affected its share price.

Intel’s Q2 2022 results were worse than the market expected. It reported a sharp decline in its performance, with earnings per share of $0.29 compared to its estimate of $0.70 per share.

Its quarterly revenue of $15.3 billion was also much lower than the projected $18 billion.

It marks a 16.5% quarterly revenue drop and a 22% yearly decline.

In its latest results, the company revised its revenue and profit outlook downward for the rest of its financial year. It signalled the expectation of continued difficulties in the future.

The graph below shows Intel’s quarterly revenue figures.

Intel revenue

Intel has six operating segments, of which the Client Computing Group (CCG), Datacentre AI group (DCAI), and the Network and Edge group (NEX) form part of its core operations.

In its Q2 results, Intel recorded a 25% and a 16% drop in revenue in its CCG and DCAI segments, respectively. These two segments collectively contribute 80% to the company’s revenue.

Segment% of revenue
Client Computing Group (CCG)50%
Datacentre and AI Group (DCAI)30%
Network and Edge Group (NEX)15%
Accelerated Computing Systems and Graphics Group (AXG)1%
Intel Foundry Services (IFS)0.1%

Computer chip producers worldwide have experienced significant shortages in microchip demand as inflation, rising interest rates, and fears of a global recession increase.

The lower demand can be seen in Intel’s results. These factors, combined with the current macroeconomic condition, caused Intel’s share price to drop by 51% year to date.

The share price decline makes Intel look undervalued relative to its historical price-to-earnings (P/E) ratio.

Intel’s average P/E ratio since 2017 is 13.1 times earnings, significantly higher than its current P/E ratio of 5.55.

The table below also shows that Intel has a low P/E ratio compared to its industry peers.

CompanyP/E Ratio
Micron Technology Inc6.82
Qualcomm Inc9.74
Intel Corp5.55

A big risk for Intel

Although Intel appears to be undervalued, it faces a significant risk. 

Tensions between the U.S. and China heightened when the Biden administration restricted exports of technology and microchips to China.

The U.S. argued that China could use advanced U.S. microchips for military purposes that could threaten the U.S.

These new restrictions heavily regulate chip exports to China.

It could significantly impact Intel’s growth as China is its largest contributor of revenue at 27%.

Region% of Revenue
United States18%

Despite these challenges, Intel remains a big player in the semiconductor industry, generates huge revenues, and is a good dividend payer.

It looks very attractive at current levels for investors who can stomach the risk which comes with Intel.


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