Navigating the Fine Line Between Patience and Stubbornness in Investing
One of the most significant challenges investors face is distinguishing between patience and stubbornness. It’s essential to recognize when you’re wrong and when you’re simply ahead of the curve. This discernment can be the difference between achieving remarkable returns and experiencing devastating losses.
A prime example of this dilemma is the current situation with semiconductor giant Intel. The company is undergoing a painful transformation, investing heavily in manufacturing and attempting to establish a foundry business that can rival industry leader TSMC. Meanwhile, Intel is playing catch-up in its product divisions as rival AMD continues to release impressive products.
This turnaround was never going to be easy, quick, or inexpensive. Intel faces the daunting task of rapidly bringing new manufacturing processes online, all while navigating a brutal downturn in the PC market and shifting priorities among data center customers. To address these challenges, the company has implemented a $10 billion cost-cutting program, which includes reducing its workforce by 15%.
The market’s reaction to this news was swift and severe, with Intel’s stock price plummeting below $20 per share. Today, the company trades below book value, a valuation that seems overly pessimistic given its market leadership in PC and server CPUs, as well as the value of its manufacturing assets.
For Intel shareholders, it’s essential to ask: Am I wrong, or do I just look wrong? I chose the latter and increased my stake in Intel as the stock reached multi-year lows. Here’s why.
In the past, Intel’s product divisions and manufacturing operations were deeply intertwined, leading to a ripple effect of delays that hindered the company’s ability to keep pace with AMD. However, Intel is now emerging from this challenging period. The company’s recently launched Sierra Forest and Granite Rapids server CPUs have transitioned to the Intel 3 manufacturing process, significantly increasing core counts and closing the performance gap with AMD.
On the PC side, Intel has outsourced production to TSMC, with impressive results. The company’s Lunar Lake laptops are delivering exceptional battery life, and the forthcoming Arrow Lake is expected to be drastically more efficient than its predecessors.
The key to Intel’s future success lies in its Intel 18A process, which will be used for many of its own products and serve as the main draw for its foundry business. The company has already secured significant customers, including Microsoft and Amazon, and expects to begin scaling up production next year.
While Intel’s foundry segment is currently losing billions of dollars annually, this is a necessary investment in the company’s future. Once external revenue starts flowing, the profitability picture will improve. Intel’s decision to split its foundry business into a subsidiary could also attract new customers and enable outside investment.
Investing in Intel today is not a bet on a specific outcome, but rather a bet that the company’s manufacturing investments will ultimately pay off. It’s a bet that paying around 80% of book value for a market leader like Intel will prove to be a wise decision in the long run. Only time will tell if I’m being patient or stubborn.
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