Intel Stock Has Plenty of Room to Run Despite Market Share Threat from Nvidia’s Project Denver

Intel (NASDAQ:INTC) traditionally competes with AMD (NYSE:AMD) in the microprocessor market. However, given a recent announcement by Nvidia (NASDAQ:NVDA) at the 2011 Consumer Electronics Show, these two microprocessor giants should prepare for a new competitor to enter the ring. Nvidia announced its plans for “Project Denver”, the company’s initiative to build high-performance ARM architecture based CPU (central processing unit) cores that will support regular desktop and notebook PCs as well as servers and super computers.

We recently wrote an article (Can Project Denver Justify Nvidia’s Stock Run?) examining whether Nvidia’s increase in stock price over the past month is justified by the outlook for its new venture. Based on Nvidia’s stock gain and our estimates for CPU pricing and profit margins, we concluded that the market may be expecting Nvidia to acquire a steady microprocessor market share of 5% by the end of our forecast period.

This is good news for Nvidia, but how does it affect the outlook for Intel?

Our price estimate for Intel currently stands at $26.26, well ahead of market price.

More than 5% Chipped Off Our Intel Estimate if Nvidia Grabs 5% Microprocessor Share

Nvidia is well-known for its graphics cards. While it has dominated the discrete graphics industry along with AMD, Intel is by far the leader in integrated graphics. But Intel’s new Sandy Bridge chip blurs these lines, redefining integrated graphics by incorporating GPU (graphics processing unit) within the CPU. The move poses a new threat to Nvidia’s integrated graphics business.

However, it appears that Nvidia also recognizes the upside potential for itself in this type of initiative. Nvidia is now venturing into the CPU business, and will look to embed its own graphics chips, putting it in direct competition with Intel’s Sandy Bridge.

While it is more likely that Nvidia will grab market share from both Intel and AMD, we consider the potential downside to Intel under the scenario in which Nvidia takes a full 5% microprocessor share from Intel alone by the end of our forecast period. This 5% market share estimate for Nvidia is based on our previous analysis as described above.

If Nvidia succeeds in gaining a 5% microprocessor market share by grabbing business from Intel, it could generate 5% downside to our Intel price estimate. At $26.26, our price estimate remains well ahead of market value, so the potential downside still leaves Intel stock with plenty of room to run.

Drag the trend line in the modifiable chart above to see how Intel’s stock could be affected by various market share scenarios for its notebook business, which remains the company’s most valuable product segment.

Register to win a free iPad. Visit our home page at trefis.com for details.

You can see the complete $26.28 Trefis price estimate for Intel’s stock here.