Intel – Sage seller

Intel should sell as much as it can.

• In the face of nonsensical valuations for the EV sector and Mobileye no longer being a core part of Intel, it makes complete sense to relist the company, but Intel should sell as much of the company as it can.
• Acquisitions are more often than not abject failures, but this one can only be described as a smashing success.
• Intel bought Mobileye for $15bn in 2017 and since that time, the company’s revenues have trebled, and it has cemented an 80% market share in machine vision systems for advanced driving assisted systems (ADAS).
• Consequently, when Intel lists this, the valuation that it achieves could easily be more than $50bn representing a return of over 3x.
• Crucially this is enough to pay for at least 2 of the cutting-edge fabs that Intel is going to build upon which its quest to reclaim its semiconductor crown is based.
• As a result of Intel’s strategic pivot back towards manufacturing excellence, Mobileye (and Moovit) have become non-core holdings.
• This combined with the ludicrous valuation being attributed to EV and autonomous driving companies in the market right now makes it the perfect time to sell.
• The one mistake that Intel is making is that it intends to maintain a majority holding in the company.
• Given that Mobileye is non-core and will almost certainly be overvalued when it lists (just like the rest of the sector), I think Intel should get rid of as much of Mobileye as it can without hurting the valuation.
• It should also then sell down gradually in the market until its entire stake has gone or the shares have fallen to a level where it no longer makes sense to sell.
• Now is also the right time to sell as Mobileye is at the peak of its power and influence but for the first time, there is credible competition on the horizon.
• Qualcomm. Nvidia and others are all working on alternatives to Mobileye but to date, Mobileye’s superior performance has meant these challenges have fallen by the wayside.
• I think that this is beginning to change and that Mobileye will be seeing much tougher competition starting next year.
• The lengthy design and production cycle of vehicles means that investors won’t see this competition in Mobileye’s figures much before 2024 or 2025.
• This will give Intel time to exit the rest of its holding before any real problems are realised in the financial statements or share price.
• Intel’s make-or-break manufacturing strategy is going to be very capital intensive and so the proceeds from the sale should be put to good use.
• Furthermore, Intel has everything to prove when it comes to demonstrating that the x86 is not obsolete and that it still has a place as the performance architecture to beat.
• Intel remains one of the cheapest semiconductor stocks available at the moment but at the same time, the challenges that it faces are existential.
• Hence, I think it should go lower before all of these risks are fully priced in.
• I might get tempted again around $44.