The shares of Intel Corp. fell Friday as nearly a third of analysts studying the stock cut their price targets after a strong earnings report that distracted little from the advance of smaller rival Advanced Micro Devices Inc.
reported quarterly results that stormed the doors of its own and analyst estimates on Thursday, but the outlook amid a global chip shortage barely made clear what Wall Street had expected. The stock fell as much as 6% in trading on Friday morning, following their worst day since the stock fell 9% after a strong earnings report six months ago. For comparison: the PHLX Semiconductor Index SOX,
was up nearly 1% on Friday.
Many analysts agreed that a mere 9% drop in Intel’s data center group, or DCG, revenue to $6.5 billion was actually good news, as analysts expected a stronger drop to $5.84 billion, although the chipmaker is still AMD lost market share to AMD,
The bad news, aside from the unimpressive outlook amid a global chip shortage, was that Intel’s transformation back to an undisputed leader in the semiconductor industry still appeared to be a long-term goal with little clarity on short-term progress.
Read: Intel seems to be feeling AMD’s competitive heat
In a note titled, “Sometimes a clean bedspread hides dirty sheets,” Bernstein analyst Stacy Rasgon said that although Intel’s full-year outlook was raised a little — to earnings of $4.80 a share on revenue of $4.80 a share. $73.5 billion, from $4.60 a share on revenue of $72.5 billion – it still suggested a downward guide for the second half of the year.
And if you pull back the 2H covers, it suggests that the bed is more cluttered than it appears at first glance, with a low Q4 [gross margins] and Q4 gains which (as far as we can tell) appear to have been boosted by hundreds of millions of dollars in non-on gains (we think up to $700 million or ~8 cents), indicating normalized EPS well below expectations is,” wrote Rasgon, who has an underperform rating and a $43 price target on Intel stock.
“Right now, Intel’s outlook for 2022 and beyond remains a kind of black box, one that we won’t get any clarity on until analysts’ day in November,” Rasgon wrote.
Cowen analyst Matthew Ramsay, who has an outperform rating and a price target of $80, admitted it’s “very early in the Intel battleship’s turn” and stocks would be “range-bound” until we get closer to November. come.
“Still, strong PC numbers and better-than-expected DCG growth were positive, but capacity constraints limit further gains in the near term, as well as AMD stock gains,” Ramsay said.
“CEO Pat Gelsinger believes both market share and pricing will stabilize in 2H21,” said Ramsay. “We agree on the latter, but we still see AMD gaining market share among hyperscale cloud customers and more recently in the enterprise server market.”
Read: Why chip stocks are falling despite semiconductor shortage, strong early gains
Evercore ISI analyst CJ Muse, who sticks to the metaphors that still have a long way to go, who has an in-line rating and lowered his price target from $75 to $60, said there is “still a lot of wood to cut” at Intel .
“In moving to DCG, the good news was that E&G/Cloud floated upward for the June Q, with growth expected sequentially in both Q3 and Q4, leading to a return to double-digit year-over-year growth Muse wrote. “The bad news was that DCG [operating margins] dropped to 30% in the Q, indicating meaningful competition from AMD.”
“When you put it all together, many unanswered questions remain, especially when it comes to the company’s manufacturing roadmap, silicon design execution versus both AMD and ARM, and its ability to build a profitable and highly scalable foundry business. Muse noted.
Citi Research analyst Christopher Danley, who has a hold rating and lowered his price target from $60 to $57, expects pressure on margins to continue as demand for chips from PC markets slows.
“We believe negative catalysts, such as PC end-market pushouts and lower margins due to AMD’s loss of market share, will result in declines in consensus estimates and offset Intel’s attractive valuation,” Danley said. “We think Intel’s gross margins could decline into the 1940s as a result of AMD’s loss of market share and a correction in the PC end-market.”
Full Earnings Coverage: Intel says chip shortage could drag on into 2023 as outlook barely clears Street View
In the past 12 months, Intel’s stock has fallen more than 12%. During the same period, the Dow Jones Industrial Average DJIA recorded,
– which counts Intel as a part – gained 32%, the S&P 500 index SPX,
is up 36%, the tech-heavy Nasdaq Composite Index COMP,
is up 41% and the PHLX Semiconductor Index is up 58%.
Of the 41 analysts covering Intel, 14 have a buy rating, 17 a hold rating and 10 a sell rating. Of those, 13 lowered their price targets, resulting in an average price target of $62.71, down from the previous $64.92, according to data from FactSet.