Last week, Bank of America Securities lowered its target price for Intel's stock from $50 per share to $44, while maintaining a neutral rating for the stock.
Prior to this target price adjustment, Intel underwent a business re segmentation, which resulted in a change in the valuation method of the company's IDM (vertical integration from chip design to production) business, including products and contract manufacturing services.
The report from Bank of America Securities points out that Intel's future largely depends on the vision of CEO Pat Gelsinger - to transform this chip company into a semiconductor foundry and compete with other companies in the industry.
However, Bank of America analysts commented on Intel's current situation, stating that although Intel's foundry business has achieved some success in external design, it still heavily relies on the company's internal design team. This dependence has led to a shift in the valuation of IDM business towards a comprehensive evaluation method, rather than evaluating each part separately.
Therefore, the new price target set by Bank of America this time is 23 times the expected P/E ratio, lower than the previously estimated 26 times.
Intel recently disclosed that its contract manufacturing business had a revenue of $18.9 billion in 2023, but an operating loss of $7 billion, higher than the $5.2 billion loss in 2022.
Positive factors and challenges
Despite lowering the target price, Bank of America analysts still emphasized several positive factors for Intel.
Firstly, personal computers (PCs) still account for 50-60% of Intel's revenue, and analysts emphasize that they are expected to experience cyclical growth in PC sales in the future. Moreover, considering the artificial intelligence features brought by the Windows 10 update, this may further drive the growth of PC sales.
In addition, the increase in the scale and profitability of Intel's OEM business is also considered a positive aspect.
Of course, this report also mentions the challenges faced by Intel, such as customer spending shifting towards accelerated computing solutions such as XPU, rather than traditional CPU chips.
Bank of America analyst Vivek Arya said that although Intel has been trying to catch up and recently announced its Gaudi3 accelerator, the new product is not expected to have an immediate impact. Arya said of the new accelerator, "We expect the initial attractiveness to be low, with a market share of less than 1%."
In addition, the emergence of other leading wafer foundries has posed competitive concerns for Intel, such as TSMC and Samsung, each receiving $6-7 billion in chip bill subsidies. Intel received a total of approximately $20 billion in subsidies and loans from the Chip Act, including $8.5 billion in subsidies to promote US chip production.