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The future of Intel (NASDAQ:INTC) is largely tied to Chief Executive Pat Gelsinger’s vision to turn the chip giant into a semiconductor foundry and compete with Taiwan Semiconductor (TSM) and others in the industry.
While the foundry unit has had some external design wins, it’s still “fully dependent” on Intel’s internal design team, which makes the whole company worth less, Bank of America said.
“Fundamentally, we highlight the upcoming cyclical upturn in PCs (plus incremental AI PC benefits from Apple M4, Win10 refresh) and improving Foundry scale/profitability as positives, particularly given PC is still 50-60% of sales,” analyst Vivek Arya wrote in a note to clients. “However, a continued wallet shift toward accelerated compute (XPUs [and] networking vs. traditional CPUs) and the emergence of other leading-edge US foundries (TSMC[ and] Samsung with $6-7B each in CHIPS Act awards) remain concerns.”
Arya now has a $44 price target on Intel, down from the $50 price target he had which was the result of a sum-of-parts valuation for Intel’s products and foundry business, plus its stakes in Mobileye (MBLY) and its programmable chip unit, the former Altera. He reiterated his Neutral rating on the stock.
Intel recently disclosed that its foundry business had a $7B operating loss on revenues of $18.9B in 2023, wider than the $5.2B loss it recorded in 2022.
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Intel has fallen behind its peers in most facets of its business, including in the all-important data center, where companies like Nvidia (NVDA) have taken market share via GPUs used for artificial intelligence.
Although Intel has tried to catch up — most recently announcing its Gaudi3 accelerator — the new offering is not expected to make a dent, Arya said.
“…[W]e expect modest initial traction at [less than] 1% share, or sub-$1B run-rate,” Arya said of the new accelerator, which is slated to be released in the second quarter and cost “a lot less” than Nvidia’s H100 offering.
Additionally, other foundry companies — notably Taiwan Semiconductor (TSM) and Samsung (OTCPK:SSNLF) — are “quickly emerging” in the U.S. given their strength in leading-edge nodes and the recent support from the Biden administration.
Taiwan Semiconductor recently received $6.6B in grants (and $5B in loans) to boost domestic manufacturing of advanced semiconductors while Samsung is expected to get between $6B and $7B in short order.
Intel received nearly $20B in grants and loans from the CHIPs Act, including $8.5B in grants, to boost U.S. chip production.
And while Taiwan Semiconductor’s U.S. fabs are seen as one to two years behind the company’s plants in Taiwan, they “generally” match the capabilities of Intel, Arya said.
Potential positive catalysts for Intel include the continued recovery in the PC market, a Windows 10 refresh, AI-focused PCs and an improvement in foundry profitability and new customers, Arya said.
