The semiconductor pioneer, Intel INTC, is reporting its Q2 earnings after the bell on Thursday (July 23rd). This quarterly report will be crucial to investor perception. The “king of chips” is falling behind the curve, catalyzed by ongoing supply chain issues and a management team that needs to start pushing further & faster into innovative frontiers. AMD’s AMD CPU technology and Nvidia’s NVDA prolific advances to GPUs are threatening Intel’s deep-rooted corporate relationships.

Intel’s management set conservative guidance for Q2 due to the COVID caused supply shortage. Intel is known to under-promise and overdeliver in quarterly reports with only 1 out of the last 12 quarters missing revenue estimates (no EPS misses in that time frame).

According to Zack’s Consensus estimates, INTC is expected to report an EPS of $1.11 on sales of $18.54 billion, representing year-over-year growth of 5% and 12%, respectively. Zacks is anticipating an over 3% upside EPS surprise when it reports Thursday evening.

Performance & Expected Performance

INTC flipped positive for the year this week but remains 11% off its January highs. Its primary competitor, AMD, surpassed its February high today as investors continue to price the future of CPUs into this chip newcomer.

Intel remains the CPU market share leader for both PCs and data centers. The global pandemic was a catalyst to action for industries where the strong will thrive, and the weak will dive. This Q2 earnings season will uncover which enterprises did which.

Data center chips are the future of the semiconductor space with cloud computing, big data, and artificial intelligence (AI) being the centerpieces of the Roaring 20s’ predicted technological explosion. Intel currently controls the data center chip market but is losing its grip. Intel needs to start pushing its innovative limits if it is going to remain the leader in this segment.

Nvidia and its hyper-fast GPU technology are becoming a necessity in data centers, specifically for AI development. These GPUs could push Intel’s CPUs into obsolescence, and investors have been pricing this into NVDA shares, with the stock soaring roughly 80% since the beginning of the year to continuously new highs. Nvidia is now valued at the same market cap as Intel despite producing only a small fraction of its sales and profits.

On a valuation basis, INTC is trading at a substantial valuation discount to its competitors. If this captain of chip technology can get ahead of the innovative-curve (in which it has been falling behind in recent years), it could have significant upside potential.

I am a buyer of this semiconductor giant at its current valuation. There is a developing chip battle for the control of data centers, and I am far from discounting INTC.

The Takeaway

I typically don’t recommend this, but buying INTC before earnings isn’t the worst idea (though I wouldn’t recommend a large position). The stock doesn’t have an enormous amount of downside potential at its current valuation. 

This stock could easily blow past its conservative estimates and get a nice share price boost. Guidance for the remainder of 2020 is going to be a crucial factor in INTC’s price action.

Just Released: Zacks’ 7 Best Stocks for Today

Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.1% per year.

These 7 were selected because of their superior potential for immediate breakout.

See these time-sensitive tickers now >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research