AI + OEM dual engine PS and PE low to ridiculous Intel Corporation (INTC.US) is about to usher in a valuation repair?

Intel Corporation (INTC.US) is currently transitioning from a long period of underperformance to substantial revival, and the market has not fully recognized this change. Despite implementing a multi-year restructuring plan from wafer manufacturing to edge AI and PC, its stock price is only slightly higher than book value, with a much lower P/E ratio compared to peers. However, the latest quarterly financial report shows that its core business is stabilizing, cash flow is positive again, which is crucial for the capital-intensive transformation. With a redefined manufacturing roadmap, a new generation of chips designed for the AI era, and unprecedented government subsidies, Intel Corporation is seizing multiple long-term growth opportunities simultaneously. Skeptics in the market only focus on the surface profitability dragged down by massive investments, but they assert that Intel Corporation is a value trap. However, a deeper analysis reveals that the company is undergoing a comprehensive transformation at a cost significantly lower than the reset cost. Compared to the valuations of other chip giants like NVIDIA Corporation and AMD, Intel Corporation's 1.8 times price-to-sales ratio (PS), approximately 16 times EV/EBITDA valuation, and less than 20 times expected PE valuation, make its overall valuation "absurdly low." For market observers, the key question is not whether Intel Corporation should enjoy a PS or PE valuation similar to NVIDIA Corporation or AMD, but whether the current valuation gap will be corrected after the expansion of its most advanced wafer fabrication business, AI PC, and data center accelerator business. Core Points Intel Corporation's revival depends on a comprehensive transformation rather than just minor adjustments. The management is reshaping the company from a CPU-centric model to a diversified platform that sells both chips and manufacturing capabilities. Its flagship 18A process has transitioned from risk production to initial production phase, with external orders received, thereby regaining the technical credibility that the market had questioned. Microsoft Corporation's decision to customize chips based on the 18A process and a $15 billion public manufacturing order book verify this progress. On the product side, Intel Corporation is fully embracing the demand for AI computing. The Core i9 Ultra second-generation processor integrates an on-chip neural network engine, which will enter mass production this year, coinciding with a wave of PC upgrades driven by the shift of AI inference to the edge. In the data center field, the Gaudi 3 accelerator is significantly more efficient and cost-effective than NVIDIA Corporation's H100, while also being compatible with mainstream AI frameworks, proving that Intel Corporation can compete in the highly profitable high-performance computing sector. By combining design expertise with open manufacturing capacity, Intel Corporation aims to be the preferred manufacturer of advanced logic chips in the U.S., turning AI demand and the GEO Group Inc's politically driven industrial chain re-shoring into long-term growth drivers. Revival of Manufacturing Business The core of the transformation is Intel Corporation's foundry services (IFS). This department now operates as an independent accounting unit, prices according to market demand, and openly reserves orders. The department's first-quarter revenue reached $4.7 billion, a 7% year-on-year growth. The management reiterated that with the improvement of capacity utilization, breakeven would be achieved by 2027. A key development is that early customers' 18A wafers were completed on schedule, and the company has developed an enhanced 18A-P process to improve performance parameters, shortening the iteration cycle that previously troubled its technology roadmap. External confidence is also building up. Microsoft Corporation, Amazon.com, Inc., and at least two undisclosed design companies have signed up for 18A capacity, pushing the lifetime agreement value to over $15 billion even before mass production. Although this order size is still below that of Taiwan Semiconductor Manufacturing Co., the trend is more important: each additional wafer customer is helping Intel Corporation fill the capacity of its giant new wafer fabs in Arizona and Ohio - the depreciation pressure of these fabs must be relieved by economies of scale. This turning point is similar to Samsung's ascendancy a decade ago: once top customers validate a process node, secondary customers tend to follow suit. AI PC Wave After a decade of stagnation, the PC market is now experiencing its most important upgrade cycle since Windows 10, driven by AI at the device end. The Intel Corporation Core i9 Ultra 200 series comes with a dedicated neural processing unit that can run lightweight language models and image generation tasks, reducing cloud calls and latency. Early designs from OEM partners such as Lenovo, Dell Technologies, and HP Inc. show broad support for the chipset. Mini-PC manufacturers have begun promoting the use of Ultra 9 chips for local large language model inference. The significance goes beyond just an increase in shipments. Processors that support AI capabilities can raise average selling prices and, when paired with optional standalone Arc graphics cards, expand single-slot revenue. Intel Corporation commands over 70% market share in the commercial laptop market - the segment most likely to adopt AI features due to privacy and latency considerations. Even if only one-third of this user base achieves a 5% increase in average selling prices, it could bring in over $1 billion in additional annual revenue, a leverage effect often overlooked by market forecasting models. Data Center Accelerator Layout Investors tend to overlook Intel Corporation's accelerator roadmap, but the Gaudi 3 chip changes the game. Benchmark testing shows that its inference speed is on average 50% faster than NVIDIA Corporation's H100, with a 40% improvement in energy efficiency and lower material costs. As large-scale procurement decisions depend on overall cost of ownership rather than peak computing power, each incremental improvement in efficiency provides cloud service providers eager to overcome NVIDIA Corporation's supply chain bottlenecks with an alternative option. Furthermore, Intel Corporation can bundle Gaudi with its Xeon 6 CPU in a heterogeneous rack and package them with self-developed next-generation chip interconnect technology - a combination that NVIDIA Corporation, lacking its own fabs, finds difficult to replicate. The management's goal is to achieve a double-digit market share in the AI accelerator market by the end of 2027. Considering the industry's total size is expected to exceed $400 billion by 2030, even achieving half of this target would bring in billions of dollars in high-margin revenue. National Security and Policy Dividend Intel Corporation's manufacturing expansion strategy aligns well with U.S. industrial policy. In November last year, the U.S. Department of Commerce finally approved $7.86 billion in direct subsidies to Intel Corporation's projects in four states, along with state incentives and $3 billion in defense contracts. These funds arrived when Intel Corporation's balance sheet was under pressure, effectively transferring some of the investment risk from shareholders to taxpayers. Apart from funding, the U.S. government needs reliable domestic capacity for advanced logic chips to ensure national defense and critical infrastructure. Intel Corporation is currently the only enterprise capable of scaling up to meet this demand, providing a policy optionality for its foundry strategy. The subsidy mechanism tied to milestones not only enforces execution discipline but also lowers the investment threshold for new capacity, mitigating the possibility of splitting the chip design and manufacturing business, thereby preserving the market's still underestimated synergies. Financial Performance In the first quarter of 2025, revenue stabilized at $12.7 billion, ending a streak of consecutive declines and exceeding the lower end of expectations. Although startup costs for the foundry business reduced GAAP gross margin to 36.9% (non-GAAP 39.2%), operating losses significantly narrowed from -8.4% in the same period last year to -2.4%, confirming the leverage brought by improved capacity utilization. Despite $6.2 billion in capital spending (net $4.5 billion after subsidies), with $803 million in chipset bill reimbursement and $955 million in partner payment support, Intel Corporation generated $8 billion in operating cash flow. Currently, $21 billion in cash and short-term investments correspond to $50 billion in debt, which is manageable considering debt repayment schedules and prospects for government prepayments. The management expects second-quarter revenue of $11.2-12.4 billion, with a non-GAAP gross margin of approximately 36.5%, which is conservative given the anticipated increase in seasonal PC demand after the rollout of Gaudi. Risk Factors The top risk is execution risk. Intel Corporation needs to complete five process node upgrades in four years while integrating external customers - a feat yet to be achieved by Western fabs in the sub-2nm era. If the yield of the 18A process falls below expectations, it may deter early customers, delaying breakeven until after 2027 and extending the cash consumption cycle. Supply chain disruptions or equipment delays could also lead to capital spending exceeding the $18 billion budget for 2025. The competitive landscape poses the second threat. NVIDIA Corporation is set to launch the Blackwell architecture GB200 accelerator, and AMD's MI350 series is closing the performance gap in training. If Gaudi fails to maintain its cost advantage, large-scale buyers may restrict their purchases. On the PC side, Qualcomm's Snapdragon X Elite, based on Arm, pressures Intel Corporation to improve efficiency with its impressive endurance and native AI capabilities. Finally, policy directions may change: a new government could reassess chip funding, changing the conditions for project viability. Conclusion At 1.8 times price-to-sales (PS), 16 times EV/EBITDA, and 0.5 times the five-year expected PEG, Intel Corporation's valuation is significantly lower than AMD (8.5 times/37 times/0.79 times) and NVIDIA Corporation (26 times/43 times/2.0 times). Distortions in static PE due to restructuring costs; and if the market consensus EPS of $1.35 in 2026 is used, the expected PE is approximately 16 times, making it more attractive compared to AMD's 32 times and NVIDIA Corporation's 51 times. The market still perceives Intel Corporation as a struggling traditional manufacturer, but it is actually transforming into a local foundry enterprise with autonomous AI chip technology and federal subsidy advantages. As long as the management follows the established roadmap, margin expansion and valuation revaluation will follow suit.