Is Intel’s $50 Billion Europe, Israel Bet Enough to Spur Future Earnings Growth?
2023.06.22 09:50
- Intel plans a $50 billion investment in Europe and Israel
- The tech giant’s previous earnings were underwhelming, sparking a stock price correction
- Can the investment spur future earnings growth, making the current price decline a buying opportunity?
- InvestingPro Summer Sale is on: Check out our massive discounts on subscription plans!
The world’s largest manufacturer of integrated circuits and microprocessors, Intel Corporation (NASDAQ:), is making a bold move with a planned $50 billion investment in Europe and Israel that could change the faith of its operation.
The giant’s growth trajectory gained momentum in the 1990s with the booming personal computer market, solidifying its position as an industry leader. However, the semiconductor industry has recently become a battleground between global powerhouses China and the US, resulting in increased sanctions and trade restrictions on these products and tighter market share for the Santa Clara, California-based Intel.
Given the heightened scrutiny from investors and Western governments, particularly the United States, Intel’s latest move is receiving close attention from regulators. The company aims to expand its production capacity in Germany, Poland, and Israel, allocating over $50 billion for these ventures.
Intel’s Strategic Investments
The lion’s share of the investment, approximately $33 billion, will be directed toward constructing two semiconductor manufacturing plants in Magdeburg, Germany. It’s worth noting that the German government will contribute around one-third of this amount.
A similar funding arrangement has been secured for the plant in Poland, which will focus on semiconductor integration and testing, serving as a vital component of the planned European infrastructure. Intel’s commitment to Israel is also substantial, with an investment of $25 billion, making it the largest foreign investment in the country’s history.
However, it’s important to temper expectations as the agreements are still in their early stages, and production at the designated locations is projected to commence in 4-5 years. Therefore, the immediate impact on Intel’s financial results and stock valuation is expected to be limited.
Intel’s Financial Woes
On the flip side, Intel’s financial situation has been a cause for concern, especially when examining its quarterly performance. Out of the last four financial statements, three have reported negative net income, accompanied by declining revenues. This has resulted in a subpar rating for the company’s InvestingPro financial health indicator, scoring only 2 points on a 5-point scale.
Despite these challenges, investors and market observers are left pondering whether the current correction presents a favorable opportunity to consider buying positions in Intel. With its significant investment plans on the horizon, the long-term outlook and potential for growth remain intriguing, though caution is advised given the company’s recent financial performance.
Intel Revenue
Source: InvestingPro
Intel Net Income to Company
Source: InvestingPro
The declining trend of the free cash flow yield ratio is another worrisome aspect to consider. This ratio compares the free cash flow per share to its market value per share, providing insights into the returns investors can expect from their invested capital. Unfortunately, the last three quarters have witnessed a significant decline in this ratio.
Intel Free Cash Flow
Source: InvestingPro
The company’s stock price is heading lower due to fundamental issues and diverging from its main competitors, such as NVIDIA Corporation (NASDAQ:).
Ongoing Correction a Buying Opportunity?
During the latter part of May and early June, Intel’s stock experienced an upward movement, primarily driven by the overall positive sentiment in the stock market.
However, the recent two sessions have witnessed a rapid decline, raising doubts about the continuation of the upward trend. InvestingPro fair value index indicates that the most probable scenario is consolidation at current levels.
Intel Fair Value
Source: InvestingPro
From a technical point of view, the price’s reaction to the nearest support level, located near $32 per share, is a positive sign. However, given the dynamics of the decline, it cannot be assumed that this is a classic corrective move.
Intel Daily Chart
When considering both technical and fundamental factors, it seems that there may be significant challenges ahead for the bulls. For a return to an upward trend, one essential requirement would be an improvement in quarterly results during the second half of the year.
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Disclaimer: This article was written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel, or recommendation to invest, nor is it intended to encourage the purchase of assets in any way.
