After months of turbulence, Intel Corp bulls are finally being rewarded for their patience. But the stock’s sudden rebound comes with a worrying side effect: a valuation so high its most recent precedent is from the dotcom era more than two decades ago.
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Shares of the struggling chipmaker have rallied 28 per cent this month, adding about US$24 billion in market value, on reports that the US government is in talks for a potential equity stake, as well as plans for a US$2 billion investment from Japan’s SoftBank Group Corp.
The jump has Intel trading at 53 times profits projected over the next 12 months, the highest since early 2002, according to data compiled by Bloomberg.
“The stock looks incredibly expensive here,” said Wayne Kaufman, chief market analyst at Phoenix Financial Services. “That kind of multiple is a bet that the government will push Intel so hard on customers that it becomes a winner.”
The surge in Intel this month followed a slump in the wake of a disappointing earnings report on July 24 and criticism of new CEO Lip-Bu Tan earlier by US President Donald Trump, who called for Tan’s resignation amid alleged conflicts of interest.
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But after meeting Tan on August 11, Trump changed his tune, saying the CEO’s “success and rise is an amazing story”.