During a Tuesday event, Intel (INTC) announced a sharp shift in strategy, which seemed to please investors. The company will begin to focus on building for cloud computing, self-driving vehicles, machine learning and other technologies in the “data-centric” world, a shift from its past focus on the PC market. While the PC market remains large, the opportunity is enormous in emerging technology, which continues to grow at a torrid pace and is still far from hitting its full potential.
However, Evercore analyst C.J. Muse remains cautious on INTC, maintaining an In Line rating (i.e ‘hold’) and $50 price target, which implies about 10% downside from where the stock is currently trading. (To watch Muse’s track record, click here)
During Tuesday’s “Data-Centric Innovation Day,” Muse says the company focused on its “offerings into the Data-Centric TAM that should approach $200B into the 2022 timeframe,” with the emphasis “on offering a platform approach (vs. a CPU) and filling out the product portfolio, with a scalable, targeted platform for customers to pick features as needed.”
Muse is excited about “the company’s [claim that] Cascade Lake offers customers a 35% better performance, and 50% better TCO generation on generation,” which should be the focus rather than looking at “limited micro-architectural improvements.” The analyst sees “the company trying to focus away from the CPU and INTC’s market-share, and towards the ‘data center’ ecosystem around the CPU and INTC’s opportunity around it in a ‘data-centric’ TAM.”
Looking ahead, Muse says the company is “likely setting a low bar with their 1QCY19 Guide” and feels “quite positive on Cascade Lake ramping in 2Q through CY19, driving positive earnings revisions this earnings season.” But he does concede that AMD is “making huge strides with its EPYC/Rome 64-core architecture, with momentum supported by TSMC’s 7nm lead.” Muse fears “server CPU share loss coupled with likely more aggressive pricing (as a reaction by Intel management) will limit upside from here.”
Overall, once the king of its industry, Intel is facing some challenging times ahead. While competitors, including AMD and Nvidia saw share prices soar in recent years (before the entire industry collapsed), Intel has been growing modestly as the company’s PC-centric focus wasn’t providing much opportunity. However, turning to data could provide the jump Intel needs to boost its stock.
Intel stock has a cautiously optimistic Moderate Buy consensus rating from the Street. This breaks down into 13 ‘buy’, 11 ‘hold’ and 4 ‘sell’ ratings in the last three months. However, we can see from TipRanks that the average analyst price target is $55, which reflects a slight downside from the current share price. (See INTC’s price targets and analyst ratings on TipRanks)
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