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Will chipmaker stocks maintain gains?

By Chris Lau for Kapitall.

Investors that missed out on Intel’s (INTC) big run up might not have a pull-back to look for. After upping its guidance, Intel shares rallied from the mid $20’s to close near $31 in recent days. A lack of margin pressure, strong pricing power, and ongoing product developments all suggest Intel’s shareholders will see more upside.

Margins improving

Intel raised its forecast on revenue growth for 2014. The firm now expects revenue will hit $13.4 to $14 billion. This is sharply higher than analyst consensus ($13 billion). Bearishness lingered on Intel for several quarters, chiefly because investors expected PC sales to decline preciously. Instead, Microsoft’s (MSFT) move to end support for Windows XP will jumpstart sales of computer chips. This will also be a boon for Advanced Micro Devices (AMD) shareholders, though to a lesser degree.

Mobile growth missing

Intel’s lack of success in mobile, relative to its strength in the PC market, weighed on its shares in the past. Its Atom processor is far behind other mobile chip solutions, including those sold by Qualcomm (QCOM) and Apple (AAPL). If Intel remains committed to developing low cost mobile chips, it might start to gain market share. The chip is being offered by manufacturers whose tablets run on Microsoft’s operating system.

Server market

The PC market isn’t the only segment benefiting from faster, more efficient chip architecture. Grantley is a chipset that will be based on the Haswell architecture. It will have 14 cores, while supporting DDR4 DRAM. Grantley will succeed the Romley server platform.

Bottom line

Intel’s run above $30 might hold water this time around. The PC refresh cycle will not be as big as investors once hoped for. Tablet and smartphone demand will limit the cycle. Despite that, people will still upgrade their systems, and this will still benefit Intel and AMD. On the server side, profit margins and revenue will improve for Intel thanks to new product releases. This should bode well for its shares this year.

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