5G Should Usher In a Long-Awaited Comeback for Intel Stock

Will Healy

Updated Thu, Sep 20, 2018, 10:52 PM

However, like its largest PC-era peers, Intel has finally found its identity in today’s tech market. Now a leader in data centers and the Internet of Things (IoT), Intel appears poised to return to double-digit profit growth. The impending launch of 5G wireless will only make the company’s current offerings more valuable. Once 5G becomes more widely adopted, the fortunes of Intel stock should rise along with this new wireless technology.

Intel Suffered From Competition and Self-Inflicted Wounds

Like many of its peers that defined the PC era, Intel struggled to find an identity when PCs began to fall out of favor. Intel’s founders have either passed away or long since retired. Intel stock and the company’s fortunes plummeted amid these changes.

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As a result, INTC found itself behind the curve on many of the latest technologies. Nvidia (NASDAQ:NVDA) has taken the lead in both artificial intelligence (AI) and self-driving cars. Also, AMD (NASDAQ:AMD), the one-time perennial second-place company in the PC era, has now moved ahead of Intel in some areas.

Moreover, the startup Ampere Computing, founded by former Intel president Renee James, has won business from Lenovo (OTCMKTS:LNVGY) with his company’s chips. All of these factors led to the company losing its long-held title of “world’s largest chipmaker”.

Intel has also suffered from self-inflicted wounds. The revelation of the Spectre and Meltdown viruses early this year damaged the company and Intel stock. In June, the sudden resignation of CEO Brian Krzanich brought more uncertainty to the company.

Intel Has Redefined Itself

However, Apple (NASDAQ:AAPL) prospers without Steve Jobs and Microsoft (NASDAQ:MSFT) has forged a new path without Bill Gates. By the same token, Intel can thrive without Gordon Moore or Andrew Grove.

The company has paved a path to the future by its involvement in data centers IoT. Today, client computing remains Intel’s largest segment. However, the data center division now holds second place. If current growth rates hold, the size of its data center segment will overtake the PC business by the early part of the next decade.

Cloud computing has driven this need for data centers. That need will grow further as 5G wireless networks begin launching this year. As this 5G technology leads to a quantum leap in wireless speeds and capabilities, data center demand will likely climb further.

Intel Stock Has Become a Buy

This leaves Intel stock investors with a buying opportunity. Current earnings estimates place the forward price-to-earnings (PE) ratio at just over 11. Even with the struggles of the last five years, the company’s PE has averaged 15.75 in that time. Also, a brutal summer has left the stock trading 20% below its June highs.

Estimated earnings of $4.17 per share represent a 20.5% increase over last year’s earnings. And while earnings growth may slow next year, analysts still expect double-digit earnings growth on average over the next five years.

Conservative investors should also look at the dividend. Intel stock began paying a dividend in 2000. Though it does not go up every year, it has increased its payout in all but two years since then. The annual dividend has now reached $1.20 per share, giving Intel stock a yield of about 2.6%.

The Bottom Line on Intel Stock

The impending rise of 5G should usher in a return to prominence for Intel stock. INTC has suffered for years, as the decline of the PC left the company without direction. As the company worked to redefine itself, competitors have surpassed Intel in many areas. Turmoil within the company weighed further on Intel.

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However, the company has found double-digit growth with data centers and IoT. The benefits of both will become even more apparent once 5G enters the mainstream. PC-era stocks such as Microsoft have already made a comeback. Soon, Intel stock will likely have its turn.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.