I share your concerns about margins, but my call at these prices is predicated on my view that Intel's EPS won't grow fast enough. You need optimistic assumptions to support $120/sh.
I don't worry about retirement cash -- if growth slows, even this exuberant market will kill you: e.g., Dell.
AMD is stuck in low-end with K6, mid-end with K7 -- but Intel will have its hands full on the high end with the old guard defending their turf, and new entrants (e.g., Wildfire/Puma). I further worry about Rambus (DOA?), and cannibalization.
To value, I discount the "dividend" Intel is paying in the form of buybacks, assuming a continued payout of 50%. Take the (optimistic) '99 estimate of $5 EPS. Give 'em (charitably) five years of 15% growth. Tack on infinite, moderate growth of 5% (still twice stable GDP growth). Discount @ 10% -- FV = $80.
Even with happy assumptions, you have to accept a bond-like return of 8.4% to reach current value. I don't think "the market" is willing to accept that. If you require textbook returns of 11.5%, you need seven years of 25% growth, before normalcy, to support the current price.
It could happen -- but seven years is a long time.
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