After rising, then falling, then rising again, Intel (INTC) stock is back down yet again.
Shares plunged over 10% since last week, and are now in the red for the year. The company is facing multiple challenges, including rising competition from AMD, continued production issues on its 10nm chip and questions on its financial state. Further, geopolitical uncertainty between the US and China is also contributing to questionable sentiment.
However, 5-star Nomura analyst David Wong remains bullish on INTC, maintaining a Buy rating and $65 price target, which implies about 40% upside from current levels. (To watch Wong’s track record, click here)
Overall, Wong believes “Intel is achieving an appropriate balance between investing for the future while keeping spending and depreciation within appropriate levels relative to revenues.”
Wong looks at capital spending as a way to the future. He believes that “increased logic capex in recent years has been important for driving forward its 10nm transition and accelerating the 7nm transition,” and expects logic spending to continue rising “meaningfully” in the next two years.
But even though the analyst expects spending to drive 7nm production, Intel is already behind. Rival AMD recently launched its 7nm processors, which is said to not only be significantly more powerful than Intel’s 10nm, but more affordable, too. While Intel still remains the leader, AMD is quickly rising, especially given Intel’s challenges with 10nm production.
Because of Intel’s recent stumble in delayed 10nm, Wong believes the company has been forced to “accelerate investment in the near term.” After 2021, when spending calms, the analyst estimates capex as a percent of revenue will decline, which will help raise gross margins.
During its Analysts Day presentations in the spring, Intel said it was “committed to closing the current gap between free cash flow and earnings, while continuing to invest in R&D and capex for growth,” according to Wong. Investors are closely monitoring whether or not the company is holding true to this. But perhaps more importantly, the company must improve its production of the 10nm and soon offer 7nm.
All in all, though Intel is falling behind, Wall Street isn’t sounding the alarms — but isn’t jumping for joy, either. TipRanks analysis of 29 analyst ratings shows a consensus Hold rating, with nine analysts suggesting Buy, ten saying Hold and ten recommending Sell. The average price target among these analysts stands at $54.14 on the stock, which implies nearly 16% upside from current levels. (See INTC’s price targets and analyst ratings on TipRanks)