hi i'm jimmy in this video we're looking
at intel stock we're going to look at
the some of the basics of intel's
business we're going to look at some of
the problems that the stock is currently
facing it's been down a decent amount
recently and then we're going to look at
we're going to try to take a big picture
perspective of intel stock to see if
it's worth investing in today
now
just so everybody knows i do personally
own shares of intel i'm trying hard not
to have a you know a bias for it so i'm
going to try to present the pros and the
cons of the stock that being said let's
jump into the basics of intel's business
so this is a chart of intel's revenue
over the past year and we can see that
their biggest business is their client
computing business now they've changed
the names of these a few years ago this
was called pc centric and it's
essentially the same thing this is the
revenue they generate from
user products so let's call it end user
products typical people products things
computers laptops things like that
compare that to the data center and ai
portion of their business well that
revenue is generating from the data
center business again they called this
the data center group before the new ceo
took over and then we have the network
and edge division that only generates
about 13 of the revenue some of the
products they make for that are things
like they're producing some chips for
the 5g rollout for companies like
verizon or at t and then we have their
mobile eye business that's the one in
yellow and that represents just three
percent of their business and this is
actually a business that they're
spinning off they bought this business a
few years ago and now they're spinning
it off they're creating its own ipo
basically which will generate some cash
for them which is a good thing from a
cash generation perspective considering
where the business is going that being
said let's look at some of the
issues and potential of intel's future
so this is a map according to that i got
this right off of intel's website this
is a map of where they have different
foundries and testing facilities around
the world as we can see they have a
decent amount of facilities they had 10.
now they did recently sell this facility
this was part of their nand business
which they sold off last year and so
that so that one's no longer there
but now this brings us to what they're
trying to do going forward so it appears
that intel has acknowledged the fact
that amd right now their competitor is
producing by some standards better
products by a lot of standards better
products amd's products many times are
outperforming intel's and they're
cheaper it costs less for the consumer
to buy them
so what intel's trying to do is upgrade
their capabilities to produce their own
ships faster and better and try to get
back ahead of the technology curve so
one of the things that they're doing is
they're putting 20 billion in two new
fabs over in arizona they already broke
ground on these projects so they're
already starting to build them then they
plan on investing another 20 billion in
two new locations over over in ohio
they've got five billion dollars in
upgrades happening to the malaysia
locations and another five billion or so
happening in their new mexico locations
already we're at 50 billion dollars in
spending to try to improve their
capabilities then they're also talking
between spending somewhere between 10
and 20 billion dollars somewhere in low
in somewhere over in europe they haven't
announced where yet they haven't found
the final location yet not that not that
i'm aware of they haven't announced it
yet at least
but you're talking between 60 and 70
billion dollars in expenses or not even
expenses in investments it's called
capital expenditures we're going to jump
to that in a second
first let's look at cash flow from
operations how much money does intel
generate and then we're going to come
back to this map idea in a minute
because this is crucial to the future of
their business and it's also one of the
biggest problems that they're facing
right now
so how much cash is intel generating
this is a chart of intel's cash flow
from operations that's what cfo is short
for and this is one of the most
important numbers that any company can
produce most companies ca how much cash
does the company actually bring actually
bring into the business and we can see
that for a while intel's cash flow from
operations was ramping up and then in
recent years it started to pull back a
bit this has been one of the major
concerns for intel and rightfully so
though that's the last thing you want to
see now analysts are projecting that
going forward those numbers are going to
ramp up again but even according to
analysts
intel won't get back to their previous
high of cash flow from operations until
2025 so we're a few years from now
before they even get back to where they
were and then it's expected to grow from
there okay now this brings us to capital
expenditures or capex for short so these
red bars are capital expenditures and we
can see the biggest concern here is
what's expected to happen over the next
couple years they're expected to have a
huge ramp up in spending to produce all
the new facilities now after that is
done of course it's not the decline is
not expected to continue it is expected
that capital expenditures will
gradually increase after that in line
with previous the previous rate but this
is important because if you take cash
flow from operations you ex you subtract
capital expenditures what you end up
with is free cash flow and we can see
that in the time periods where capital
expenditures are going sky high because
they're building all these new plants
around the world and upgrades and things
like that well cash flow from opera i
mean free cash flow decreases in fact
let's eliminate these other lines and
zoom in to just free cash flow we can
see that over the next three years where
50 or so billion dollars is expected to
be spent we can see that according to
analysts these are analyst estimates for
what cash flow from operations for what
free cash flow will be well we can see
that these numbers are way way down off
previous highs and this has been one of
the big pressure points one of the real
problems for a company like intel now in
theory the
the added capital expenditures for
intel
gets them out of their problem because
the problem is their products haven't
been won manufactured effectively and
two haven't been quite good enough now
recent products have had good signs and
look like they are doing better from a
performance standpoint but you still
have to be able to get them to market
now obviously i believe as an investor
on a personal basis i believe that intel
will be able to turn this around and
these numbers will gradually ramp up i
think that the advantage that
longer-term investors have right now is
if we can see past just the next couple
years certainly past the next couple
quarters which is where many investors
focus certainly where the headlines
focus if we can see beyond that we can
look at the bigger picture let's say the
next five years well over the next five
years the company looks far more
appealing never mind if we went out
further once they're once their major
expenses are mostly behind them now of
course they will continue to have
capital expenditures and they should go
up they go up for every company so now
let's jump over and look at the fair
value calculation for intel stock using
discounted free cash flow but we're
actually going to do two different
calculations one if we just looked at
the next three years and a second one if
we looked outgoing five years so when we
jump over to our free cash flow
calculation here's what it looks like
okay so we can see that if we use just
analyst estimates going up the next
three years we get a negative fair value
for the stock now obviously the stock's
not worth negative that is negative
because we're using discounted free cash
flow and when we look down at the free
cash flow numbers well analysts are
expecting those numbers to be negative
so mathematically that would give it a
negative fair value
obviously this is ridiculous but i think
that what many people are doing is that
they're looking at this and they're
saying well because things are going to
be bad over the next couple of years
therefore the company's worth a lot less
today
but i think if we take a bigger picture
perspective on it we have the potential
to drastically outperform over the long
run i'm talking multiple years so using
those same free cash flow numbers that
we saw before if we extend out from
three years to just five years well we
can see that the fair value suddenly
jumps up to about 51
per share that's a drastic difference
and that is because the numbers are
expected the free cash flow numbers over
the next one or two years over the final
one or two years are expected to
drastically improve by the way the two
additional years that we added here
don't even assume that free cash flow
gets back to its previous level in 2020
they put up almost 21 billion dollars in
free cash flow i assumed that they would
put up about eight and a half billion in
2025 and by 2026 they should be at about
18.5 billion now i expect them to
personally i expect them to get to
previous numbers
either in 2026 or in the year after that
so i think that these numbers are bid on
the conservative end i think that the
important point here is do we think that
intel over the next five or so years can
improve their production do we think
that the 50 60 70 billion that they're
going to spend will help position them
for the future for after this whole time
period if we do it looks like intel
could very much be a good buy at the
current price if we don't we should
probably pass on this one by the way if
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thank you so much for sticking with me
all the way to the end of the video i
really do appreciate it thank you and
i'll see in the next video