Investors across various investment forums have been busy lately with heated debates about Intel (INTC) still being a good investment alternative, in light of recent advances by the smaller rival, AMD (AMD). We have heard countless arguments about how chipzilla has the resources to crush the competition as desired and how it will thrive anyway. But in the midst of this tug of war between bulls and bears, institutional investors have already chosen sides. A wide range of these investors sold the Intel stock and bought AMD shares in the last 13F cycle. This trend should affect long-term Intel shareholders.
(source: Image marked for reuse)
Let me start by saying that institutional investors do not have a crystal ball that allows them to look into the future, reliably, time and time again. But what they do have is access to resources, supply chain connections, research tools and a long-term vision that, overall, allows them to make truly informed and critically informed decisions. So, tracking the trading activity of this class of sophisticated investors can sometimes give us insights on how a company and its shares can perform in the near future.
For Intel's concern, Nasdaq reports that a total of 1,055 institutional investors bought around 161 million shares during the last 13F cycle, while 1,428 firms sold around 206.9 million shares. This generated a net sale of approximately 45.9 million shares, representing approximately 1.1% of chipzilla's total outstanding shares. To be honest, the sales ratio is not much, nor does it appear to be high enough to cause panic in the markets.
But let's dig a little deeper into this institutional data. To begin with, we know that the number of institutions that sold the Intel stock made up more than 35% of those who bought the stock. This crude comparison may not have a bearing on the number of shares exchanged, but it highlights the general disposition of this community of institutional investors.
Second, I looked at Intel's 60 largest institutional investors to see if there were any discrepancies in their trading patterns. It turns out that 28 of these investors sold the chipzilla stock, while 32 of them increased their positions. This almost even split suggested that Intel's largest investors were more or less uncertain about the company's growth prospects.
(Nasdaq data, chart prepared by author)
If the stock was grossly undervalued and offered a significant upside from today's levels, these institutional investors may have actively bought into Intel . But it obviously didn't happen. Actually, retail investors should be wondering if we should buy the chipzilla when the big guys aren't.
Then I dug further into the institutional hold patterns of Intel and its smaller rival in the computer microprocessor space, AMD. After all, investment forums routinely discuss how one is a better investment opportunity than the other. I hoped that looking at the data with this perspective would give us some new insight.
But that was not the case.
There are 245 institutional holders, per fintel.io, who traded AMD and Intel's shares in the current or last 13F cycle. Out of this pool of sophisticated investors, 54% bought AMD's stock and sold Intel's stock. The remaining 46% traded the other way. This data also suggests that institutional investors were more likely to sell Intel shares, and it goes on to say that these companies and funds prefer AMD over chipzilla.
(Data from Fintel, found here and here, diagram compiled by author)
This begs the question – Why are institutional investors beating bearish on Intel in the first place?
Bearish for Good Reason
The problem with investing in Intel is that it is no longer the process manager. The chipzilla has been hit regularly with 10nm-related production chats that have allowed Taiwan Semiconductor (TSM) to become the industry leader in the below 14nm manufacturing node. This technological advantage, in turn, has been a major contributing factor to AMD's recent success – a TSMC fab customer. AMD, which used to compete for the bottom of the market in the pre-Zen era just a few years ago, now has products that arguably outperform Intel's finest in both performance and performance per dollar.
With Intel's recurring return hiccups and Taiwan Semiconductor's impressive pace of node development, the former may not regain process management at any time. Fellow contributor Mark Hibben has already discussed this aspect of Intel's business in detail in its recent post, so we will not discuss the same points here again. But this industry dynamic essentially suggests that AMD (a TSMC customer) will continue to gain market share for at least the next 6 to 8 quarters, and Intel may have to lower its price points and possibly even sacrifice margins to remain competitive on performance – to dollar calculations within the x86 data room.
The chart below highlights AMD's market shares in the x86 desktop and puts things into perspective.
(Source: Business Quant)
Not to mention, analysts have been estimating low revenue growth for Intel's FY20 and FY21. This does not project a very encouraging picture for growth-seeking investors or for those who think the chipzilla is on the verge of regaining momentum. The stock also gives a very modest 2.2% at this time which may not attract income-seeking investors. So it's not hard to see why a wide range of institutional investors are selling Intel shares lately.
(Source: Seeking Alpha)
I would like to refer to your readers that institutional trading alone will not necessarily move Intel's shares in the near future. This information only highlights the trades that have already taken place in the past. So investors should at best use this data to see that the street's attitude toward Intel is growing bearish.
Sure, Intel has posted outstanding growth rates in the better part of the last two decades. However, process management, which was one of the most important contributing factors behind the success of the fallopian tube, is now a distant dream. So I would recommend readers and investors reassess their investment mission in Intel and factor in this newfound risk factor. However, this is not a call to shorten the stock. Good luck!
Author's Note: I will be writing a new article about AMD and Intel next week, you can stay up to date by clicking the "Follow" button at the top. Thanks!
Disclosure: I / We have no positions in the listed shares and have no plans to start any positions over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I do not receive compensation for it (other than Seeking Alpha). I have no business relationship with any company mentioned in this article.