Intel Just Secured a Huge Customer for Its Foundry Business

Computer company Intel (NASDAQ: INTC) has been soaring in value over the past year amid excitement and potential for its foundry business. Recently, the company signed a large customer: Fortinet, which will use Intel to develop advanced security chips. While it's not the first customer for the foundry business, it is the first named one.

This is a great sign for Intel's foundry that it is winning over big-name customers such as Fortinet, which is a leader in cybersecurity solutions and services that generated nearly $7 billion in revenue last year. Does this deal make Intel, whose stock is already up 150% this year, an even better investment?

Image source: Getty Images.

Intel's foundry business has been growing, but profits remain elusive

The announcement of a major customer, Fortinet, is a great sign of progress for Intel's foundry business, as it shows that its services are competitive. Winning over large customers will inevitably be crucial for it to be the growth machine many investors hope it can be. Taking market share from a low-cost manufacturer such as Taiwan Semiconductor, which dominates the market, will be no easy task. But if Intel can secure larger customers, that is a great sign its business is moving in the right direction.

Last week, Intel reported its second-quarter earnings for the period ending June 27, with revenue of $16.1 billion, up 25% year over year. Its foundry business was among its most promising growth areas, with revenue of $5.8 billion growing by 31%. However, it still incurred a $2.1 billion loss. But the good news is that's an improvement from the $3.2 billion loss it posted a year ago.

Is Intel's stock a good buy right now?

Intel is doing well of late, but the biggest problem with the stock may be that these recent results, as impressive as they are, may already be priced in to its valuation. It's trading at a forward price-to-earnings multiple of more than 100, based on analyst expectations, and thus it may be difficult to justify buying the stock at its elevated valuation.

There's been tremendous hype and excitement around Intel over the past year as it has secured high-profile deals and even received an investment from the U.S. government. There may still be room for the stock to rise higher, especially if Intel's business continues to grow at a strong rate, but at such a high valuation, there's also significant downside risk that investors need to consider.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Fortinet, Intel, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.