Intel: We Maintain our $35 Fair Value Estimate Despite Possible Near-Term Gross Margin Softness

We maintain our $35 fair value estimate for no-moat Intel after assessing management’s keynote address and investor question-and-answer session as part of its “Intel Innovation” event. The stock sold off 4% after management commented that gross margins won’t expand by “hundreds and hundreds of basis points next year.” FactSet consensus estimates were calling for over 500 basis points of expansion next year. Such comments may imply modestly worse gross margins than what we’re projecting in 2024 but don’t alter the rebound we are anticipating in long-term adjusted gross margins into the high 50% range by 2027 (albeit still short of Intel’s 60% long-term target). With the selloff, we view Intel’s shares as fairly valued.