The Intel (NASDAQ: INTC) share price surged on Wednesday after it announced plans to list its subsidiary Mobileye as a separate public company. This is Intel’s driver-assistance and autonomous driving technology business it bought in 2017 for just over $15bn.
Autonomous driving is an exciting sector, so it’s understandable why the Intel share price rose on the news. It does suggest that Mobileye was being undervalued by the market before the announcement of the planned initial public offering (IPO). Indeed, Intel stock has slumbered recently. Rival US companies AMD and Nvidia are both up in double-digits over one year, compared to less than +4% for Intel.
Does this mark a turning point for the Intel share price? Let’s take a look.
The business
Intel is best known for designing and manufacturing CPUs (central processing units). In fact, it’s a co-founder, Gordon Moore, whose now-famous law ‘Moore’s Law’ has driven the development of the computer chip industry for decades.
Today, Intel generates the majority of its revenue from selling advanced CPUs into the personal computing market. It also sells chips to the expanding data centre sector.
The IPO
The Intel share price was up over 6% at one point on Tuesday when the IPO for Mobileye was revealed. Apple recently announced plans to launch its own autonomous vehicle, so there’s a lot of interest in the sector.
I think Mobileye is potentially a better way to gain exposure to the expanding driverless car market in my portfolio. The company says over 40m cars have Mobileye technology already installed.
Intel said it will retain a majority stake in the business after the IPO, and use some of the proceeds it raises from selling Mobileye to build more manufacturing plants. This should really help its cash flow, and potentially lead to share buybacks.
I also view the share price rally as the market beginning to realise the value of Mobileye. As mentioned, Intel stock has stayed in single-digits this year as rival companies’ share prices have soared. It’s one of the cheapest stocks in the S&P 500 right now, on a forward price-to-earnings ratio of 10.
Is Intel stock a buy?
I’ve always viewed Intel as a quality company. It achieves operating margins of 30%+ and double-digit returns on its capital, two characteristics I look for when buying shares.
But the issue has been its poor growth, or complete lack of it. For example, revenue for this year is expected to decline by over 5%, and to stay approximately flat in 2022.
For additional context, Intel’s revenue forecast for this year is $74bn. This is almost three times Nvidia’s revenue forecast of $27bn. However, at time of writing, Intel’s market value is almost $214bn, and Nvidia’s is $810bn. Nvidia’s much higher forecast growth rates mean its market value is far higher than Intel’s.
Intel has, therefore, struggled to grow in its core CPU market. This is a key risk to the business.
The IPO of Mobileye is a positive development, though. I’ll be taking a deeper look at this when it lists. But for now, Intel is staying on my watchlist until its growth rate improves.