Making smart investments often requires you to not follow the crowd. In the semiconductor industry, you can’t follow the crowd any less than buying Intel (INTC -1.33%) stock. While Intel is struggling right now, the company’s manufacturing investments still hold a lot of potential and could be the key to the company’s turnaround.
Another neglected semiconductor stock is Qualcomm (QCOM 2.42%), which trades at an uninspiring valuation. While Qualcomm’s core smartphone chip business is mature, the company has plenty of long-term growth opportunities in other areas.
If you’ve got $1000 to invest, want exposure to semiconductor stocks, and are willing to take some risk, Intel and Qualcomm should be on your radar.
Left for dead
Intel is going through one of the biggest crises in its decades-long history. The company’s expensive bet on becoming a semiconductor foundry has been slow to show progress, market share losses in PC and server CPUs are putting pressure on the financials, and a complete failure to become a major player in the AI accelerator market is a particularly embarrassing black eye. There are some bright spots, notably the company’s second-generation graphics cards, but overall, the picture certainly looks rough.
Former CEO Pat Gelsinger, who crafted Intel’s current strategy, was pushed out in December. The company now lacks a permanent CEO, and its strategy is up in the air. The stock was understandably hammered following abrupt layoffs and a dividend suspension in August, and the rout continued amidst the leadership shuffle. Shares of Intel are down more than 55% from their 52-week high, and they trade for below book value.
The silver lining is that Intel is the only U.S.-based advanced logic semiconductor manufacturer. The company’s vast manufacturing assets, based in the U.S. and Europe, are valuable beyond their carrying value on the balance sheet. Intel is almost certainly too important to fail, although spinning off the manufacturing business or other maneuvers are a possibility.
While Intel’s predicament looks dire, the company’s upcoming Intel 18A manufacturing process could be an inflection point. Intel 18A is expected to bring Intel back on par with TSMC in terms of manufacturing technology, and the company is banking on the process to give its upcoming Panther Lake PC CPUs and Clearwater Forest server CPUs a distinct edge. Microsoft and Amazon are both signed up to use Intel 18A for various home-grown chips, and if the process meets expectations, more customers could follow suit.
I won’t sugar coat it: Intel stock is risky, and you’re going to need an iron stomach to hold the stock through the attempted turnaround. But with Intel valued at less than $100 billion, down about two-thirds from its decade high, the upside for investors could be enormous if the company can get back on its feet.
Long-term growth opportunities
Qualcomm makes the majority of its revenue from smartphone chips. In the fourth quarter of fiscal 2024, the company generated $6.1 billion in revenue from smartphones out of $10.2 billion total. Most of the rest came from Internet of Things, automotive, and technology licensing.
While the smartphone market is mature and may not be a major source of growth for Qualcomm, the company is branching out into other areas that hold some long-term promise. One of those areas is the PC market. Qualcomm launched its first PC CPUs last year, which are based on the Arm architecture just like its smartphone chips, and it worked with Microsoft to make sure Windows and most Windows software worked well on laptops powered by the new chips.
While Qualcomm’s PC chips are powerful and efficient, progress has been slow. The company expects to generate $4 billion in annual revenue from PC chips by 2029, a small fraction of what market leader Intel generates each year. One thing holding back Qualcomm is compatibility issues. While many applications work fine, some PC games and other applications suffer from serious issues, which may be driving away customers. However, these problems should eventually be solved, and there’s no reason why Qualcomm can’t turn its PC chip business into a sizable source of revenue in the long run.
Server CPUs are another area where Qualcomm could build another multi-billion-dollar business from nothing. The company has already tried and failed once with Arm-powered server CPUs, but it looks likely that it will try again. Arm in the data center is becoming more common as tech giants design their own in-house server chips, meaning that the software ecosystem should be more accommodating to Qualcomm as it re-enters the server CPU market.
Qualcomm stock isn’t overly expensive, trading for around 15 times the average analyst estimate for fiscal 2025 earnings. Growing earnings is going to depend on Qualcomm’s success outside of the smartphone market, so multiple failures could keep the stock price in check. However, if the company finds success with PCs, servers, or both over the next five years, Qualcomm stock could be a market-beating winner.
