Intel's stock has fallen far enough, this analyst says

By Emily Bary

Wolfe Research ends bearish call while noting challenges remain for Intel

Intel Corp.'s stock has been a staggering laggard so far this year, down 37% over the course of 2024 and trailing the PHLX Semiconductor Index by nearly 60 percentage points.

So with that backdrop, Wolfe Research analyst Chris Caso is moving away from his bearish call. He still sees challenges ahead for Intel (INTC), but in light of the weak recent stock performance, he's moved to a peer-perform rating from his prior underperform stance.

"Our cautious thesis played out, with limited margin improvement in [calendar years 2024 and 2025] despite achievement of 5 nodes in 4 years manufacturing strategy," Caso wrote. "With sentiment and expectations lower, we upgrade to [peer perform] but we still don't see enough earnings power to support a favorable rating."

Intel shares were up about 1% in morning trading Thursday.

Caso had been concerned that growth in server central processing units wasn't robust enough to help Intel manage the cost of capital expenditures and depreciation related to its target of delivering five nodes in four years, which the company says is critical to helping the U.S. achieve leadership in process technology.

But the cost realities seemed "validated by the recent disclosure that Intel does not expect manufacturing co to achieve breakeven until [calendar 2027], and profitability will require greater foundry business at the end of the decade," Caso wrote.

As such, that dynamic is now well known to Wall Street, he noted, and Intel also has the potential to drive some improvement to gross margins next calendar year and into 2026.

"While we do not think the story supports a positive investment thesis, we also believe the narrative is likely to improve from here, as [gross margins] are likely to begin improving more meaningfully in [calendar 2026], and investors will look to value the company on [calendar 2026] earnings," Caso wrote.

-Emily Bary

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05-16-24 0947ET

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