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Intel shares rating reiterated on slower initial traction in AI

EditorNatashya Angelica
Published 05/17/2024, 11:32 AM
INTC
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On Thursday, Deutsche Bank reiterated its hold rating on shares of Intel (NASDAQ: NASDAQ:INTC) with a price target of $38. The update came after an investor meeting with Intel's VP John Pitzer, where the company's efforts in the artificial intelligence (AI) market were discussed. Despite slower initial traction in AI compared to its competitors, Intel is making strides in various areas.

Intel's AI generator market expectations include generating over $500 million in revenue from its Gaudi processors this year. This figure represents a small portion of the revenue compared to what GPU and ASIC players are earning.

The company anticipates a more significant increase in revenue with the launch of Falcon Shores in 2025-26. Regarding AI in PCs, Intel plans to ship 40 million units of AI PC processors (Meteor Lake) in 2024, with future products like Lunar Lake being more AI-focused. More details are expected to be revealed at the upcoming Computex event.

The company also foresees advantages from the anticipated Enterprise PC refresh cycles, as businesses update to AI-equipped PCs, which could lead to a more profitable product mix. Still, there has been some investor disappointment following Intel's recent operational split into Foundry and Product segments due to the extended timeline to reach break-even in the Foundry business.

Nevertheless, Deutsche Bank believes that this period will enable Intel to shift from less efficient to more profitable manufacturing nodes.

From a long-term perspective, Deutsche Bank expects Intel to achieve its gross margin (GM) and operating margin (OM) targets of 60/40% by 2030. This goal hinges on the company significantly reducing manufacturing costs, increasing Foundry revenue, and gaining market share in data center AI and maintaining growth in other segments.

The bank notes that while Intel's transformation efforts are costly and the financial benefits will take years to materialize, the market will be watching for consistent improvements from the company. Intel shares were trading at $31.98 on Friday morning.

InvestingPro Insights

Intel's recent performance and market standing offer a mixed picture. According to InvestingPro data, Intel has a market cap of $136.35 billion, reflecting its significant presence in the industry. The company's P/E ratio stands at 33.12, indicating how much investors are willing to pay for each dollar of earnings, which is relatively low given the near-term earnings growth potential.

This aligns with one of the InvestingPro Tips, suggesting that Intel is trading at a low P/E ratio relative to near-term earnings growth, potentially making it an attractive buy for value investors.

Despite a slight revenue decline over the last twelve months, with a -2.09% change, Intel's quarterly revenue growth shows a positive uptick of 8.61%. This growth could be a sign of recovery and aligns with the company's ambitious plans for AI processor revenue and PC shipments. Moreover, Intel has maintained dividend payments for 33 consecutive years, which may appeal to income-focused investors.

For readers looking to delve deeper into Intel's financials and future prospects, there are 31 additional InvestingPro Tips available at Investing.com/pro/INTC. To gain access to these insights and more, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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