Intel at Book Value?

Stocks A to Z
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https://www.barrons.com/articles/tech-stocks-small-caps-portfolio-4045f20e

Intel
INTC
-3.81%
 stock has gotten so cheap that it now trades around tangible book value.

The shares, which are off 4.7% Friday to $19.53, change hands at right about their tangible book value, which Barron’s calculates at around $19.50 per share.

It’s rare to find a major company—technology or otherwise—trading around tangible book value, because the measure approximates liquidation value, and most big companies are worth considerably more than an operation ready to turn off the lights.

Shares of peers Advanced Micro Devices and Nvidia

NVDA


-0.21%
 trade for more than 15 times and 50 times tangible book value, respectively. Both AMD and Nvidia are much more profitable than Intel, however.

Intel may be near a bottom. The stock hit a recent low of just under $19, and tangible book value could prove to be a floor for the share price.

Tangible book is a conservative measure of book value that strips out goodwill and other intangible assets. Barron’s calculates Intel’s tangible book at around $83.4 billion, the same as its market capitalization. Intel’s valuation relative to tangible book was noted on X recently by Rihard Jarc, co-founder and chief investment officer of New Era Funds

Most of Intel’s assets—over $100 billion—are its semiconductor plants that are classified under plant, property and equipment. The company has net debt (short- and long-term debt less cash and equivalents) of more than $30 billion, and its credit rating was just downgraded to Baa1 from single-A3 by Moody’s, which cited weaker profitability.

…
Intel stock, at current levels, offers a favorable risk/reward for investors. Intel’s market value of $87 billion is dwarfed by rival AMD at over $200 billion, Broadcom

AVGO


1.73%
 at $675 billion, and Nvidia at $2.5 trillion.

If the company weren’t so strategically important to the U.S., it might be a takeover candidate. Investors can now buy the stock at about where it traded 25 years ago. There are few if any major tech companies like that.

CEO Pat Gelsinger, as he has a number of times, just bought the Intel stock dip, paying about $250,000 for 12,500 Intel shares, about $20 each, on Aug. 5.

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Gelsinger owns 631,307 shares (according to Barrons), so 12,500 is roughly 2% of it. But in general, while there are many reasons for execs to sell shares, there is usually only one reason for them to buy shares … because they think they will go up, or at least because they think their purchase, as a show of confidence, will cause the shares to go up.

As far as “tangible book value” goes, I wonder if that has much meaning in a heavily capital expenditure type of business. If the tangible book value of all the fabs, etc is about $80B, but because technology marches on, in a year, it’ll be worth $75B, and in 5 years will be worth $50B, unless the company invests $30B to move those fabs to newer technology, then what is tangible book value? Even if $10B out of the $30B comes from government?

That said, there will likely be some sort of bounce off the low at some point for Intel. But that doesn’t change the issue of the heavy capital required for them to move ahead and perhaps recover someday.

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Intel has been spending about $25B/year on capex so much of that is current. 2021+2022+2023+H1 2024 = $82B in recent capex for INTC.
It is taking them around 4 years from ground breaking to production output for these modern factories, which is about the same as we see with TSMC. Capex significantly leads output.

As an aside, with the modern EUV factories and their new IDM 2.0 strategy factories no longer get “upgraded”. This follows the same model TSMC uses.

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