Apple Talks Just Changed Everything for Intel

Key Points

• Intel has surged more than 140% since the start of April, with this week’s Apple talks fueling the latest push higher.
• The significance is not so much that a partnership might be in the works, but that Apple now sees Intel as credible enough to even consider as a partner.
• While the long-term turnaround story is becoming increasingly compelling, the stock now looks extremely overheated in the near term.

Shares of Intel Corporation NASDAQ: INTC are trading around $110 following another explosive week for the stock. It has seen a move of more than 400% over the past 12 months and more than 150% since the start of April alone.

While the company’s broader turnaround has been the key driver in the multi-month rally, this week’s report that Apple Inc NASDAQ: AAPL is exploring a potential relationship with Intel was enough to send the stock even higher.

Arguably, the most important part of that report was not that Apple and Intel are in talks, but that Apple now sees Intel as credible enough to even be part of the conversation.

That matters because, for much of the past couple of years, Intel was viewed as a company that had lost its technological edge and was falling permanently behind its competitors. The idea that Apple, arguably the world’s most demanding hardware company, would consider Intel as part of its long-term supply chain strategy represents a massive shift in perception and all but confirms Intel’s new reputation as a company that must once again be taken seriously.

Why Apple News Matters So Much

For investors, the key question now is whether Apple’s interest marks the start of Intel’s next phase higher, or simply the peak of an already historic rally. Notwithstanding the gains that Intel shares had already seen, the market's immediate reaction to the Apple news leaned towards the former.

To talk specifics, Apple is apparently having exploratory talks with Intel as a potential manufacturing partner in the United States, as it looks to diversify away from its heavy dependence on Taiwan Semiconductor Manufacturing Company NYSE: TSM.

In a world increasingly being shaped by geopolitical tensions, supply chain resilience and domestic chip production are hot topics. For Intel, however, the importance goes much deeper, given Apple doesn’t start exploring strategic chip relationships with just about anybody. Even if these talks don’t lead to a formal agreement in the coming weeks, the fact that Intel is being considered at all is an enormous validation of the company’s new and improved standing in the industry.

That’s exactly what investors would have been waiting for. Intel’s turnaround story has always depended on the market eventually believing the company could once again become a credible manufacturing force. This week’s report suggests that belief is beginning to take hold at the highest level possible.

Intel’s Turnaround Is Looking Very Real

Just a year ago, this kind of conversation would have sounded absurd. Intel shares were trading at the same levels as in 1996, and the company was widely viewed as a legacy chipmaker that couldn’t keep up with younger, more agile competitors. Now, the narrative is reversed.

Last month’s blowout earnings report fundamentally changed the conversation around the stock. Investors finally saw evidence that Intel’s investments may actually be working, and the market’s reaction since then has been extraordinary.

Year to date, Intel shares have gained about 200%, far outpacing arguably the hottest of these younger, supposedly more agile competitors, NVIDIA Corp NASDAQ: NVDA. That’s a stat that few investors last year would have believed even possible, and Apple’s interest in the company is just the latest tailwind to take shape.

The Setup Is Exciting, But Extremely Overheated

At the same time, however, investors need to stay realistic about what the stock has already done. As of March 6, Intel is officially one of the most overbought mega-cap stocks in the market, with its relative strength index (RSI) sitting in the mid-80s, the second-highest reading it’s seen in the past decade. The stock has gained more than 30% in the past week alone, and technically speaking, this kind of move is extremely difficult to sustain indefinitely.

Importantly, Intel is also now trading at or above some of the more recently updated bullish analyst price targets, including KeyCorp’s $110 and Benchmark’s $105 target. There has also been a noticeable run of Neutral or equivalent rating updates over the past week as Wall Street attempts to balance growing long-term optimism with the reality that the stock has become extremely stretched in the near term. This alone should be a warning to any investor considering chasing the stock at these levels.

Weighing the Opportunity From Here

Now, that doesn’t mean the rally is over. Strong momentum stories can remain overbought for far longer than many expect. But it does mean anyone getting involved around here should be prepared for the strong possibility of near-term profit-taking pullbacks.

That could be a good thing for those looking for an entry, because even if the stock needs time to cool off after such a historic run, Tuesday’s Apple report suggests Intel’s turnaround story may still be in its early stages.