The Market Has Priced Intel Anywhere Between $24 and $142 in the Past 12 Months

Within the past year, the market has valued Intel (NASDAQ:INTC) at $23.68 per share, at $142.35 per share, and at nearly everything in between. As of this writing, shares sit at $87.26 -- about 39% below the high, and still about 3.7 times the low.

That is a sixfold spread within one year for the same company. How much of Intel's price is the business that exists, and how much is a claim on the foundry business Intel is promising to build?

Image source: Intel.

Two endpoints, one year

The bottom of the range is barely a year old. Shares fell to $23.68 last September, days after the U.S. government agreed to convert $8.9 billion in already-awarded chip grant money into 433.3 million shares at $20.47 apiece (a stake of about 10%). A couple of weeks later, Nvidia announced a $5 billion investment of its own at $23.28 per share.

At the bottom, the whole company was valued at about $105 billion. And the money arriving at those prices wasn't ordinary fund-manager money. The government and Nvidia were backing strategic manufacturing capacity, not chasing near-term earnings.

The top came at the end of June, when shares touched $142.35. That peak arrived about three weeks before Intel reported its fastest revenue growth since 2011, so the market's top price wasn't paying for reported results. It was paying for where the numbers seemed to be headed.

Since then, shares have given back about 39%, even as reported numbers have continued to improve. Intel raised about $23 billion earlier this month, selling new shares at $95 apiece, and the stock now trades well below that price, too.

The business changed less than the price did

To be fair, the business did improve. Revenue grew 25% year over year in the second quarter, to $16.1 billion from $12.9 billion -- growth Intel hadn't shown since 2011. The data center and artificial intelligence (AI) segment grew 59% year over year to $6.3 billion and about 24% from the first quarter alone, indicating accelerating growth as the year went on. Intel Foundry, the manufacturing arm at the center of the turnaround, grew 31% to $5.8 billion. Management, for its part, guided third-quarter revenue to $15.8 billion to $16.8 billion. The company itself expects sales to hold near the new level.

But I'd argue the more important list is what didn't change. Intel Foundry posted a $2.1 billion operating loss for the quarter, despite that growth. The company as a whole lost about $11 billion on a GAAP basis over the past year, largely due to charges. And the foundry's revenue still comes mostly from manufacturing Intel's own products. Outside customers remain a small slice.

In other words, the bottom of the range priced Intel as a broken chipmaker, and the top priced it as a successful foundry -- a business that arguably doesn't exist yet at a profitable scale. The improvement showed up in the numbers, but it explains only a fraction of a repricing that ran from about $105 billion of market value to roughly $700 billion in under 10 months.

Micron makes the same point in reverse

Memory specialist Micron (NASDAQ:MU) shows what the other version of a wild year looks like. Its 52-week range is even wider than Intel's ($114.25 to $1,255, an 11-fold spread), but its move tracked earnings that actually showed up. Trailing-12-month revenue rose 167%, and the company earned more than $44 per share over that period. After all of that, Micron's price works out to about 6 times next year's expected earnings -- the market treating those results as a cyclical peak rather than a lasting new level.

Intel, by comparison, costs about 43 times next year's expected earnings. And that forward price-to-earnings multiple sat above 50 as recently as mid-August, before the latest slide. The market prices this company on a daily basis, not just monthly.

Zoom out, though, and the two spreads are different in kind. Micron's results were the market repricing. Intel's is the market repricing a promise, and a promise can be marked up or down sharply because there are no earnings underneath to anchor it. The turnaround is going better than it did a year ago, and the government and Nvidia now hold stakes that pay off only if it continues. But at about 43 times next year's expected earnings, I think most of what investors are paying for is still the promise. That gap could close from either side -- the results could rise to meet the price, or the price could fall to meet the results. The results, good as they have been, don't carry the price yet.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Intel, Micron Technology, and Nvidia. The Motley Fool has a disclosure policy.