Intel (NASDAQ: INTC) stock gained 2.5% through 10 a.m. ET Friday on positive comments about the computer hardware titan’s progress building a computer software business.
As Reuters reports, Intel chief technology officer Greg Lavender painted a positive picture of Intel’s software prospects, saying the company is on course for $1 billion in software sales through 2027.
Reading between the lines at Intel
Reuters described the figure as “cumulative,” but that may be incorrect. What Lavender actually said was: “I have a goal of getting to $1 billion of software and developer cloud subscription revenue,” with a focus on artificial intelligence (AI), performance, and cybersecurity software.
To me, that sounds like $1 billion in 2027. And if Intel does in fact build a $1 billion-a-year software business by 2027, then it would mean 10x growth since 2021, when Intel’s total software revenue was only $100 million.
That would be very impressive growth indeed.
Admittedly, even $1 billion a year is tiny relative to Intel’s core semiconductors business, which produced revenue of well over $50 billion last year. Still, as regards the AI software in particular, Lavender noted that Intel is promoting open source software that can be used to power “a wide range of AI chips,” according to Reuters. Success in this realm could help Intel to whittle away a bit at Nvidia‘s lead in selling AI chips, thus indirectly boosting Intel’s main source of profit.
Is Intel stock a buy?
All this being said, I’m still not convinced that Intel stock is a buy at its current valuation.
While technically profitable with $4.1 billion in reported net income over the past year, Intel is still burning cash at a furious pace — $12.3 billion in negative free cash flow recorded over the last 12 months. And that’s up from $9.6 billion burned in 2022! With cash burn expected to continue through at least 2027, Intel stock is not yet worth buying.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a disclosure policy.
Why Intel Stock Popped on Friday was originally published by The Motley Fool
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