Bank of America lowers Intel target price: chip foundry market share is too low

BofA Securities last week lowered its target price on Intel (36.0801, 0.39, 1.09%) shares to $44 from the previous price of $50 per share, while maintaining a neutral rating on the stock.

Prior to this target price adjustment, Intel conducted a re-segmentation of its business, 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 foundry services. .

A report from Bank of America Securities pointed out that Intel’s future depends largely on CEO Pat Gelsinger’s vision to transform the 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 that although Intel’s foundry business has made some achievements in external design, it still relies heavily on the company’s internal design team. This dependence has prompted the valuation of the IDM business to shift to a comprehensive assessment. approach rather than evaluating each part individually.

Therefore, the new price target set by Bank of America this time is 23 times the expected price-to-earnings ratio, which is lower than the previous estimate of 26 times.

Intel recently disclosed that its foundry business will have revenue of US$18.9 billion in 2023, but an operating loss of US$7 billion, higher than the loss of US$5.2 billion in 2022.

Positive factors and challenges

Despite the price target cut, Bank of America analysts still highlighted several positive factors for Intel.

First, personal computer (PC) sales still account for 50-60% of Intel’s revenue. Analysts emphasized that PC sales are expected to show cyclical growth in the future. And, given the artificial intelligence capabilities brought to Windows 10 updates, this could further boost PC sales.

In addition, the increase in the scale and profitability of Intel’s foundry business is also considered a positive aspect.

Of course, the report also mentions challenges facing Intel, such as customer spending shifting toward accelerated computing solutions such as XPUs 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 initial traction to be modest and market share to be less than 1%.”

In addition, the emergence of other leading foundries poses competitive concerns for Intel, such as TSMC and Samsung, which each received $6 to $7 billion in Chip Act subsidies. Intel received a total of approximately US$20 billion in subsidies and loans from the Chip Act, including US$8.5 billion in subsidies to promote US chip production.

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