The technology sector has been in the spotlight lately, with a particular focus on the semiconductor industry and its biggest developments. Of all the businesses centered in this space, two have gained the most attention today, for both good and bad reasons.
NVIDIA Company NASDAQ: NVDA has been the darling of artificial intelligence and semiconductors for over a year now, but recent accusations and speculation surrounding Super Micro Computer Inc. NASDAQ: SMCI have created some tailwinds that investors will now have to weigh and address to protect their capital in the coming quarters. As the issues surrounding Super Micro Computer stock resolve soon, NVIDIA may emerge from its crisis.
But there’s also a chance the stock could see a significant decline if the news isn’t favorable, so investors should have a backup plan for the next wave of growth in semiconductors and artificial intelligence. Knowing this, it would be useful to consider names such as Intel Company NASDAQ: INTK and its potential buyer, Qualcomm Inc. NASDAQ:QCOM. In addition, noticeable discounts are also observed in Micron Technology Inc. shares. NASDAQ: Manchester United for investors’ consideration.
Why Qualcomm’s Intel Acquisition Makes Sense Today
QUALCOMM today
(As of 11/22/2024 ET)
- 52 week range
- $125.67
▼
$230.63
- Dividend yield
- 2.17%
- P/E ratio
- 17.44
- Target price
- US$210.15
There There were news floating around the market that Qualcomm was trying to file a merger bid with Intel. At today’s market capitalization of $103.4 billion, the deal would be the largest takeover in Wall Street history. Certainly, there are many more implications that make this a no-brainer for Qualcomm.
Starting with fundamentals, the new US administration is looking to revitalize the manufacturing sector, which means accelerating the pace at which Intel will need to expand its presence domestically. Semiconductor factories in Ohio and Arizona are being built aggressively to produce Intel chips, and Qualcomm sees this as a tailwind.
As new trade and tariff policies enter the economy, it will be companies like Intel that will be able to continue the challenge of creating jobs in the sector, and this should bring more value to the market than today’s low price-to-value ratio of 0.8x. balance sheet (P/B) valuation. Now let’s look at the quantitative side of the story that motivates Qualcomm to buy Intel.
Qualcomm stock currently trades at a forward P/E of 22.5x, representing a premium of over 77% compared to Intel’s valuation of just 12.7x forward P/E. Not only does this make it an acquisition target, but it is also a relatively cheap way for Qualcomm to capture the potential growth that Intel’s stock could bring it post-merger.
According to Wall Street analysts, Intel’s earnings per share (EPS) could rise to just over $0.20, which would be a significant jump from today’s net loss of $0.46 per share. Now, given that Qualcomm is only going to grow its revenue by a relatively flat amount over the next 12 months.
Intel today
(As of 11/22/2024 ET)
- 52 week range
- US$18.51
▼
$51.28
- Dividend yield
- 2.04%
- Target price
- $30.12
Thus, the acquisition of Intel will allow Qualcomm to realize further growth potential at a relatively low price, but that’s not all. Even at today’s $100 billion valuation, Intel could still deliver double-digit growth potential, according to some Wall Street analysts.
For example, the consensus price target for Intel stock today is set at $30.1 per share, which would require the company to rise as much as 25.9% from where it is trading today. This is why tracking analyst targets is important in the midst of a potential merger.
If the consensus price target is set at $30.1 per share, then Qualcomm will have to make a more attractive offer above what analysts are already recommending. In this case, investors are facing a potential rally whose risk is relatively low compared to all the problems going on with NVIDIA and Super Micro Computer.
Intel isn’t the only semiconductor deal, Micron is here
Micron technologies today
Micron Technology
(As of 11/22/2024 ET)
- 52 week range
- $72.93
▼
$157.54
- Dividend yield
- 0.45%
- P/E ratio
- 150.94
- Target price
- $143.04
Micron Technology shares, trading today at 62% of their 52-week high, offer investors the same discount as Intel shares, but other metrics matter in this potential deal. Looking at Micron’s valuation metrics, its forward P/E ratio of 7.8x would result in a discount of over 38% compared to the rest of the industry’s average valuation of 12.8x.
Then there’s today’s Wall Street sentiment on Micron stock, which has a consensus price target of $143 per share. To prove the consensus view correct, Micron would have to rise as much as 47% from where it trades today, which would shift the risk-reward scale significantly in favor of the bulls and away from the potential risks of NVIDIA and Super Micro Computer. .
Ultimately, the deal will be driven by institutional buying activity from the likes of State Street, which increased its holdings of Micron shares by as much as 3.1% as of November 2024. With this new distribution, the group now has up to $5. billions invested in Micron, or 4.3% of the company’s shares, to prove these discounts.
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