It hasn’t been easy betting on tech-market underdogs in 2023. The winners keep on winning — while the also-rans just get run over.
Such was the case with Intel (NASDAQ:INTC) stock on Monday, as it lost 3% even though the NASDAQ closed in the green for the day. It was a reminder that the market can treat the ultra-competitive tech-component market as a zero-sum game, wherein there cannot be winners unless there are also losers.
Nvidia seeks to dominate another hardware niche
Apparently, it’s not enough for Nvidia (NASDAQ:NVDA) to dominate the artificial intelligence (AI) chip industry. Now the company wants to muscle its way into Intel’s niche: components for personal computers (PCs).
Actually, Nvidia isn’t alone in this quest. According to Bloomberg, the company is teaming up with British semiconductor manufacturer Arm (NASDAQ:ARM) to develop processors for PCs. Reuters also reported on this development, after which Intel stock declined while Nvidia stock and Arm stock moved higher.
Apparently, the Nvidia-Arm processors could be available for sale as early as 2025. Furthermore, these processors will run on Microsoft’s (NASDAQ:MSFT) Windows operating system.
These Nvidia processors would use Arm‘s technology. Reportedly, Advanced Micro Devices (NASDAQ:AMD), another Intel rival, is also developing PC processors with Arm’s technology. Like the Nvidia-Arm processors, the AMD-Arm processors could also be available by 2025.
In addition, Apple (NASDAQ:AAPL) has released Arm-based chips for its Mac computers. Thus, it appears that everybody likes Arm right now while hardly anybody favors Intel.
Get ready for the downgrades
If you’ve been immersed in tech stocks for a long time, you probably know what happens next. Analysts will come out of the woodwork to downgrade Intel stock and lower their price targets on the shares.
Meanwhile, they’ll lift their already lofty price targets on Nvidia. However, analysts will be hard-pressed to raise their ratings on Nvidia stock since they can’t go any higher than Strong Buy and Overweight.
On the other hand, they do have room to cut their ratings on Intel. Out of 31 Wall Street analysts, 20 of them had a Hold or equivalent rating on Intel stock as of Oct. 23. Thus, they could always pile on Intel and lower their ratings on the shares to Sell or something equivalent.
Then there’s the earnings event that’s coming up on Thursday. That’s when Intel will report its financial results for the third quarter. Without a doubt, both investors and analysts will already be in a bad mood regarding Intel.
You may recall that in the first quarter, commentators constantly talked about AMD taking Intel’s market share. Next, they’ll be talking about Nvidia taking market share from Intel. Again, it’s a bad year to root for tech underdogs.
Is it time to give up on Intel?
If a stock is obviously going to fall, just remember that investing isn’t as easy as doing what’s obvious. Otherwise, everybody would be a winner in the financial markets.
The markets are highly efficient. All known bad news that will affect a company’s future revenue and earnings will immediately be priced into the stock. No one is waiting for the other shoe to drop; people and institutions just sell first and ask questions later.
This occurred in the first quarter, when everybody and their uncle already knew that AMD would eat Intel’s lunch (i.e., steal Intel’s market share). The market didn’t wait for this problem to be reflected in Intel’s upcoming earnings report; Intel stock immediately dropped to $24 and change.
Intel’s impending demise could easily be described as “obvious,” but $24 and change turned out to be the bottom. Soon, the market — with its short attention span — stopped fretting about PC-market softness and who’s eating whom’s lunch.
AI chips became the greatest thing since sliced bread, and Intel adapted to the trend with its own AI-compatible processors. It turned out that the world didn’t end for Intel and its cool-headed shareholders after all.
However, the world now feels like it’s ending again. Analysts will extol Nvidia’s dominance and lionize Arm while demonizing Intel yet again. The market’s rotators will rotate because that’s what they do.
However, with pessimism surging, there may be a prime setup for a positive earnings-event surprise with Intel. After all, new bull runs are born from extreme pessimism.
Thus, it’s definitely not time to give up on Intel stock. In reality, it’s when the critics are out in full force, as they are right now, that true contrarians should be in a buying mood.
