Nothing excites some investors more than the possibility of buying a beaten down stock just before it reverses direction and takes off. If you time it right, you might double your money in a year or less.

That’s why so many people are taking a hard look at chipmaker Intel (NSDQ: INTC) these days. Since cresting above $50 late last year, INTC fell below $19 last month after posting disappointing fiscal 2024 Q2 results.

Read This Story: Dissecting Intel’s Horrible Quarter

I won’t repeat what my colleague Robert Rapier had to say about Intel’s second quarter in the article referenced above. Suffice to say it was the kind of performance that forces the company’s board of directors to contemplate making changes in the c-suite.

That’s why Intel CEO Pat Gelsinger is now frantically working on a plan to restructure the company. According to industry insiders, that strategy includes divesting non-core operations so the company can focus on its design business.

Intel’s demise is directly related to the rise of NVIDIA (NSDQ: NVDA). Four years ago, I discussed the growing competition between NVIDIA and Intel (“NVIDIA Ups the Ante in Chip Competition”).

At that time, NVIDIA was in the process of acquiring the Arm subsidiary of Softbank Group (OTC: SFTBY) for $40 billion. Of that amount, $28 billion was paid to Softbank in the form of NVIDIA common stock.

I thought that was a good deal for NVIDIA. I noted then, “In essence, this deal will cost NVIDIA almost nothing. NVIDIA’s market cap increased by $28 billion over the past month alone, fully covering the stock piece of the purchase price.”

Opposite Directions

I wasn’t focused on artificial intelligence (AI) at that time, but NVIDIA CEO Jensen Huang was talking it up: “Uniting NVIDIA’s AI computing capabilities with the vast ecosystem of Arm’s CPU, we can advance computing from the cloud, smartphones, PCs, self-driving cars and robotics, to edge IoT, and expand AI computing to every corner of the globe.”

Instead, I was more intrigued by the impact this deal might have on the 5G telecommunications sector. I felt NVIDIA’s technology would appeal to smartphone manufacturers wanting to capture 5G market share while it was still up for grabs.

I speculated that Intel and Advanced Micro Devices (NSDQ: AMD) might want to consider a merger of their own to better compete with NVIDIA. That never happened, and NVIDIA has used its superior size and strength to dominate the AI market.

Since then, Intel and NVIDIA have traveled in opposite directions. Intel’s share price has lost more than half its value while NVDA has appreciated more than 700 percent.

The ramifications of the decisions made four years ago still resonate today. NVIDIA has become the third most valuable publicly traded company in the world with a market cap of roughly $3 trillion.

Meanwhile, AMD clocks in at a market cap of $240 billion while INTC is worth $94 billion. If you are a longtime Intel shareholder, it is long past time to shake things up.

Asset Arbitrage

Intel has an estimated enterprise value of $118 billion, which is 25 percent higher than its current market cap. Also, its price-to-book ratio of 0.8 implies that the whole is worth less than the sum of the parts.

The dealmakers on Wall Street are taking a sharp pencil to Intel’s balance sheet. Unlike Gelsinger, they are not trying to save their jobs by finding a way to make Intel profitable again.

Instead, they see an opportunity for arbitrage that could entail selling all the assets of the business. If they have their way, Intel may cease to exist as an independent company.

That possibility raises a tantalizing question. Is buying INTC now while it is trading around $22 a smart move? Based on Intel’s balance sheet, a $26 – $28 share price seems like a fair price for its assets.

The options market feels the same way. At the start of this week, the Intel call option that expires in January at the $23 strike price was selling for $5 (a call option increases in value when the price of the underlying security goes up).

Coincidentally, the put option that expires at the same time and at the same strike price was also selling for $5 (a put option increases in value when the price of the underlying security goes down). That means no one is sure which way INTC is going to go over the remainder of this year, but it is likely to move strongly one way or the other.

The green rush…

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