Intel: The Big Guys Are Bailing (NASDAQ:INTC)

Intel: The Big Guys Are Bailing (NASDAQ:INTC)

Investors across various investing forums have been engaged in heated debates of late on whether Intel (INTC) is still a good investment option, in light of recent advances by its smaller rival, AMD (AMD). We’ve heard countless arguments about how the chipzilla has the resources to crush the competition at will and how it’ll thrive nonetheless. But amidst this tug of war between the bulls and bears, institutional investors have picked sides already. A broad swath of these investors sold Intel stock and bought AMD stock in the last 13F cycle. This development should concern long-side Intel shareholders.

(source: Image labeled for reuse)

Getting Bearish

Let me start by saying that institutional investors don’t have a crystal ball that lets them look into the future, reliably, time and again. But what they do have is access to resources, supply chain connections, research tools, and a long-term vision which, collectively, allow them to make really informed and critically-reasoned decisions. So, tracking the trading activity of this class of sophisticated investors can, sometimes, provide us with insights about how a company and its stock may perform in the near future.

As far as Intel is concerned, Nasdaq reports that a total of 1,055 institutional investors bought about 161 million of its shares in the last 13F cycle whereas 1,428 firms sold around 206.9 million shares. This created a net sell-off of about 45.9 million shares, amounting to approximately 1.1% of the chipzilla’s overall shares outstanding. I’ll be honest, the selloff percentage isn’t much and it also doesn’t seem to be high enough to induce panic in the markets.

(Source: Nasdaq)

But let’s dig a bit deeper into this institutional data. For starters, we know that the number of institutions that sold Intel stock outnumbered those that bought its stock by about 35%. This crude comparison may not factor in the number of shares that exchanged hands but it highlights the general predisposition in this community of institutional investors.

Secondly, I looked at Intel’s 60 largest institutional investors to check if there was any discrepancy in their trading patterns. As it turns out, 28 of these investors sold the chipzilla’s stock while 32 of them increased positions. This nearly even split suggests that Intel’s largest investors were more or less undecided on the company’s growth prospects.

(Data from Nasdaq, chart compiled by author)

If the stock was grossly undervalued and offered a material upside from the current levels, these institutional investors may have actively bought into Intel. But that clearly didn’t happen. Actually, retail investors should ask themselves if we should buy into the chipzilla when the big guys aren’t?

Then, I dug further into the institutional holding patterns of Intel and its smaller rival in the computing microprocessor space, AMD. After all, it’s routinely debated in investing forums how one is a better investment opportunity than the other. I was hoping that looking at the data with this perspective would provide us with some new insights.

But that wasn’t the case.

There are 245 institutional holders, per, that traded AMD and Intel’s shares in the current or past 13F cycle. Out of this pool of sophisticated investors, 54% bought AMD’s stock and sold Intel’s stock. The remaining 46% transacted the other way around. This data, too, suggests that institutional investors were more inclined to sell Intel stock and it goes on to say that these firms and funds are preferring AMD over the chipzilla.

(Data from Fintel, found here and here, chart compiled by author)

This begs the question – Why are institutional investors turning bearish on Intel in the first place?

Bearish for Good Reason

The problem with investing in Intel is that it’s no longer the process leader. The chipzilla has been regularly hit with 10nm-related production snags which have allowed Taiwan Semiconductor (TSM) to become the industry leader at the sub-14nm fabrication node. This technological advantage has, in turn, been a major contributing factor behind AMD’s recent success – a TSMC fab customer. AMD, which used to compete for the bottom of the market in the pre-Zen era till a few years ago, now has products that arguably fare better than Intel’s finest in both performance and performance-per-dollar metrics.

With Intel’s recurring yield hiccups and Taiwan Semiconductor’s impressive pace of node advancement, the former may not be able to regain process leadership anytime soon. Fellow contributor Mark Hibben has already discussed this aspect of Intel’s business in detail in his recent post, so we won’t be discussing the same points here again. But this industry dynamic essentially suggests that AMD (a TSMC customer) will continue to gain market share for the next 6 to 8 quarters at least, and Intel may have to lower its price points and possibly also sacrifice its margins to remain competitive on performance-to-dollar metrics within the x86 computing space.

The chart below highlights AMD’s market share gains in the x86 desktop space and puts things in perspective.

(Source: Business Quant)

Not to mention, analysts have been estimating measly revenue growth for Intel’s FY20 and FY21. This doesn’t project a very encouraging picture for growth-seeking investors or for those who believe that the chipzilla is on the verge of regaining its growth momentum. Also, the stock yields a very modest 2.2% at the time of this writing which may not attract income-seeking investors either. So, it’s not hard to see why a broad swath of institutional investors is selling Intel stock lately.

(Source: Seeking Alpha)

Final Thoughts

I’d like to point to readers that institutional trading activity alone won’t necessarily move Intel’s stock in the near future. This data merely highlights the trades that have already taken place in the past. So, investors should, at best, use this data to see that the Street’s sentiment pertaining to Intel is growing bearish.

Sure, Intel has posted stellar growth rates in the better part of the past two decades. However, its process leadership, which was one of the major contributing factors behind its breakneck success, is now becoming a distant dream. So, I would recommend readers and investors reassess their investment thesis in Intel and factor in this newfound risk factor. This, however, is not a call to short the stock. Good Luck!

Author’s Note: I’ll be writing another article on AMD and Intel next week, you can stay updated by clicking the “Follow” button at the top. Thanks!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Originally published on Seeking Alpha

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