The Ratings Game

Intel offers a ‘breath of fresh air,’ but Wall Street still has concerns about the stock

Intel’s stock moves higher after earnings, but analysts flag uncertainties around the data-center business

Analysts say Intel’s execution is clearly improving, but the company isn’t necessarily in the clear.

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Intel Corp.’s latest earnings — and the market’s reaction to them — are a study in relativity.

The chip company’s second-quarter results, put out Thursday afternoon, were “quite strong at least relative to expectations,” according to Bernstein analyst Stacy Rasgon, who called out better-than-anticipated performance of the data-center and client-computer businesses. Yet, simultaneously, he saw Intel’s INTC, +6.60% earnings as “objectively bad with continued near-term data-center headwinds, key businesses still losing money, and $3 [billion] in continued cash burn.”

Once a vocal bear on Intel’s stock, Rasgon moved to a market-perform stance in April, and he wrote Thursday that he and his team “admit to warming (very slightly)” to Intel’s story, even though they saw “more than enough here to keep us sidelined for now.”

He lifted his price target on the stock to $34 from $32 in his most recent note, while saying that the company still has “an awful lot of wood to chop.”

Still, after recent high-profile missteps, the company’s fairly low-drama earnings have Wall Street feeling a bit more relieved Friday, with shares up about 6% in premarket trading.

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Truist Securities analyst William Stein also took a measured stance, saying that while Intel logged its second straight “good” quarter, investors shouldn’t “get too excited.”

Quarters “make a fragile trend,” Stein wrote, and he remains skeptical about the long-term market potential for Intel’s x86 processor. Plus, “if a turnaround is lasting, we will have time,” he wrote.

“We acknowledge that INTC’s execution has improved significantly in the last two quarters,” Stein added, but said the company could face a “lasting problem” stemming from a shift in spending toward high-end artificial-intelligence systems and competitive risks from Nvidia Corp. NVDA, +1.85%.

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He has a hold rating on Intel shares but boosted his price target to $37 from $32.

Hans Mosesmann of Rosenblatt Securities deemed the June period “a solid recovery quarter for Intel with mixed implications for the shares” given a bottoming of the PC cycle but an “uncertain data-center trajectory.” Data-center momentum is “most important for any bull case,” in his view.

“Financially, Intel has clearly cast a model to slowly deliver on longer-term goals, setting expectations for a prolonged ramp,” he wrote. The company is executing well off a “a weak starting point,” he said, but “time will tell on the trajectory.”

For now, he rates the stock a sell with a $17 target price.

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Intel’s results and commentary suggested to C.J. Muse of Evercore ISI that management is “clearly executing to its plan,” something that he said is “frankly is a breath of fresh air from Intel.”

Muse highlighted that Intel’s operating expenses are trending below prior estimates, while the company is on track with cost-savings plans and, critically, areas like product and process roadmaps as well as build plans at its Arizona fab.

“Simply put, this was a solid quarter for Intel — showing positive signs of execution in controlling what they can and continuing to progress on the company’s roadmap and IDM 2.0 strategy,” he wrote, referring to Intel’s tagline for its foundry ambitions.

Muse maintained his in-line rating on Intel shares but said he continues to see it as a “tactical long” as earnings continue to move higher off the bottom. He lifted his price target to $40 from $36 Friday.

“There is still plenty of wood to be chopped in the path to [CEO Pat Gelsinger’s] IDM 2.0 vision fully materializing, but the company seems to be on the right track,” he wrote. “And while we do remain cautious around [Intel’s] positioning in the evolving compute paradigm and competitive landscape, if the company proves to be successful in its plan, there is clearly plenty of room for the stock to move higher.”