I started buying Intel in the mid-$30s in November. I bought more in the $40s and the $50s over the next few months. I sold a little bit in the $60s, a little more in the mid-$80s, and last week, I sold more in the mid-$120s (just under $127). The reason for the sales is the stock has more than tripled from our initial purchase just six months ago and had become a huge position. I was trimming a bit for risk-control. Over the past week or two, I’ve seen a lot of articles and posts detailing how insane it is that the market keeps rising despite high energy prices, higher inflation, and geopolitical instability. Every one of those articles uses the Intel stock chart as an example of recent excess because it’s gone parabolic/vertical.
People are pointing to historical excesses like the dot com boom and bust or the 2008 CDO housing crisis as parallels. I suppose that’s possible. I made money shorting the dot com stocks in the early ‘00s, shorting banks in 2008, and shorting the market ahead of the Covid shutdowns in 2020. There ARE times when a coming disaster is obvious and the market ignores it until we’re in crisis mode. In this situation, I think there’s something different from those historical examples.
Intel has been crushing expectations and raising guidance each quarter. Last quarter the company could have sold more than a billion dollars of additional product if it could have gotten more supply. After years of missteps, the Foundry business has a working 18A plant. Intel brought production of the Core Ultra gen 3 line back in house and it’s turned into one of the fastest product launches in company history. There are manufacturing contracts with Microsoft and Apple, an agreement with Elon Musk and Tesla/SpaceX/Xai, and plans to develop something in partnership with Nvidia. These are meaningful markers of fundamental progress. Some critics have looked at valuation multiples, but the Foundry business is currently losing money. If Intel can turn its Fab business positive on an operating income level, the market cap gets divided by very different profit numbers.
One criticism leveled against Intel is the concern that higher RAM prices will lead to higher laptop prices and reduce demand. I’ve addressed that concern in the past, and am not so worried about it anymore. First, while laptop prices have risen, it’s not (yet) the disaster many predicted. The Samsung GalaxyBook5 Pro I bought last year is selling for the same price at Best Buy now. Sure, laptops typically lose value each year, but you can buy a lot of processing power for the same price. (Note that the Samsung was a disaster and crashed so often I returned it.) I’m typing this from a new Lenovo Legion 7i with an Intel Core Ultra 7 (the high-powered HX line). It’s more expensive at Best Buy right now than when I bought it, but below the pricing when I first saw it online. So, prices have fluctuated wildly, but are flat to down over the last 6-12 months. This isn’t close to a problem.
Another reason I’m not so concerned about computer pricing is because demand didn’t disappear. It shifted. RAM is expensive because it’s being used for AI computing applications. That’s fine. Intel may sell fewer i3, i5, and i7 processors due to potentially higher laptop prices and may sell more Xeon server processors to Google for its datacenters. Taiwian Semiconductor, Nvidia, Intel, Micron, and SanDisk are all unable to meet demand. Pricing pressure that slows a portion of the business doesn’t change the fact that right now, no one is able to produce enough.
This takes me to a concern I’ve expressed in the past. I’ve previously said that OpenAI is capable of taking down the entire stock market when it doesn’t have enough capital to pay for its promised purchases. We recently saw the company cut expected cap-x commitments from around $1.4T to around $600B. That’s a massive $800B reduction, yet the market keeps making all-time highs. So, I was right about OpenAI, but wrong about the market. What’s happening?
One possibility is the market is just late. I gave multiple examples above where the coming disaster was obvious yet the market didn’t respond until after the problem became huge. I don’t think that’s the case here. I think the market is realizing that the semiconductors and other AI-hardware that OpenAI can’t buy will be bought by Anthropic (Claude), Google (Gemini), Meta (Meta AI/Llama), and Microsoft (Copilot/OpenAI). Everyone is on allocation. Market participants see OpenAI cutting orders and are assuming that someone else will buy that product. That assumption is probably correct.
Summary: I was probably wrong to worry about laptop pricing affecting Intel and about OpenAI taking down the entire stock market (although I think Oracle is very exposed here because they’re spending billions to meet OpenAI orders). The people putting up the recent charts of Intel are probably wrong to worry so much about a stock move based on improving fundamentals.
Right now, I’m indifferent to movement in Intel’s stock price. If it goes up, great – we have a big position. If it falls, great – I sold a bunch on the way up and can buy back those shares cheaper. It’s hard to pin sentiment right now and the likely coming Fed rate hikes won’t help. But as long as the business keeps performing well and customers come for 18A production, I think we’re in good shape.
Information contained in this report is believed by Deep Knowledge Investing (“DKI”) to be accurate and/or derived from sources which it believes to be reliable; however, such information is presented without warranty of any kind, whether express or implied and DKI makes no representation as to the completeness, timeliness or accuracy of the information contained therein or with regard to the results to be obtained from its use. The provision of the information contained in the Services shall not be deemed to obligate DKI to provide updated or similar information in the future except to the extent it may be required to do so.
The information we provide is publicly available; our reports are neither an offer nor a solicitation to buy or sell securities. All expressions of opinion are precisely that and are subject to change. DKI, affiliates of DKI or its principal or others associated with DKI may have, take or sell positions in securities of companies about which we write.
Our opinions are not advice that investment in a company’s securities is suitable for any particular investor. Each investor should consult with and rely on his or its own investigation, due diligence and the recommendations of investment professionals whom the investor has engaged for that purpose.
In no event shall DKI be liable for any costs, liabilities, losses, expenses (including, but not limited to, attorneys’ fees), damages of any kind, including direct, indirect, punitive, incidental, special or consequential damages, or for any trading losses arising from or attributable to the use of this report.
