Intel (NASDAQ:INTC) The stock is gaining ground on Friday. The company’s share price rose 2.9%, according to data from S&P Global Market Intelligence. In the meantime, S&P500 The index rose by 1%.
Intel shares are rising thanks to comments from Federal Reserve Chairman Jerome Powell suggesting that the central bank will soon cut interest rates. Rate cuts would not only be a positive catalyst for the stock market as a whole, but would also help improve the semiconductor company’s financial health and support its turnaround plans.
The Fed is likely to cut interest rates next month
This morning, Powell said that “the time has come” for the Federal Reserve to cut interest rates. With signs that the U.S. economy is under pressure and inflation approaching the bank’s annual target of 2%, the stage appears set for a rate cut by the central bank next month.
Lower interest rates tend to provide incentives for companies to invest in growth, as credit becomes cheaper and the relative benefits of simply investing money in bonds or other low-risk investments diminish. A similar dynamic can be seen in the stock market: low interest rates make investors less risk-averse and more optimistic about companies with growth-linked valuations.
Lower interest rates could be particularly good for Intel
Intel is in the early stages of a massive restructuring. In addition to laying off around 15% of its global workforce as part of drastic cost-cutting measures, the company must also invest heavily in building up its chip manufacturing business and fund research for new chips that can help it compete with rivals, including NVIDIA, Advanced micro devicesAnd Arm HoldingsIt is difficult to achieve this balancing act – and the current high-interest environment makes it even more difficult.
Intel currently has around $53 billion in debt on its books. A rate cut would allow the company to refinance some of its debt and reduce its overall interest expense. The company’s earnings have already been under pressure recently, and any relief on that front would likely help to mitigate the currently highly bearish sentiment surrounding the stock.
On the other hand, lower interest rates would make it cheaper for Intel to borrow money for its growth bets. Building its position as a provider of chip manufacturing services to outside developers will be enormously expensive. Improving its position in its core central processing unit (CPU) markets and winning in the data center market will not be cheap either. Intel still has a lot to prove in its comeback initiatives, and lower interest rates will make its turnaround at least a little less daunting.
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Keith Noonan does not own any of the stocks mentioned. The Motley Fool owns and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Intel and recommends the following options: short August 2024 $35 calls on Intel. The Motley Fool has a disclosure policy.
Why Intel Stock Is Rising Today was originally published by The Motley Fool
