Intel Analysts Reflect On Data Center Strength, Product Roadmap And Competition

Intel Corporation INTC shares are climbing to a six-month high following third-quarter results.

The Analysts

Morgan Stanley analyst Joseph Moore maintained an Overweight rating on shares of Intel and nudged the price target from $64 to $65. (See his track record here)

Wedbush analyst Matthew Bryson maintained an Underperform rating and raised the price target from $42.90 to $46. (See his track record here)

KeyBanc Capital Markets analysts Weston Twigg maintained a Sector Weight rating. (See his track record here)

The Theses

Morgan Stanley: Cautious, Still Like the Value Here

Intel reported healthy upside and nudged up full-year numbers for the second consecutive quarter, Moore said in a note. Data center revenues climbed 28% sequentially, with the company indicating some China pull-ins.

The analyst said it's tough to read on the impact of the pull-forwards, especially as Intel grapples with shortages of its own microprocessors even as customers look to build in front of December tariffs.

The competitive dynamics, according to Moore, have not yet created major headwinds, with the company returning to year-over-year growth for data center, desktop average selling prices rising 3% and notebook selling prices climbing 4%.

"There is more price and revenue impact as Advanced Micro Devices climbs the stack, but Intel should be able to absorb that if there is a cloud recovery year in 2020," the analyst wrote in a note.

Looking ahead to 2020, the analyst sees a negative semiconductor backdrop and a potential PC inventory correction as bigger risks that have prompted him to remain below consensus.

"Despite those potential headwinds, we continue to see value here, especially relative to a semiconductor group that we see as a bit inflated," Moore said.

The firm sees the stock to be narratively challenged in 2020, given AMD's AMD clear share gains. However, Intel's much higher capital spending and internal fabs put it in a position to stabilize share in 2021.

"It will be important for Intel to execute against its product roadmap next year to maintain that faith."

See Also: Big Chip Q3 Earnings Preview: Intel Could Win On Muted Expectations, AMD Makes Inroads

Wedbush: ‘Competition In 2020 & Beyond Causes Us to Remain Negative'

Price increases drove the quarterly beat, but Bryson said going forward its ability to continue to raise pricing is in question, especially due to a more substantial competition from AMD.

The analyst sees the strength in the Data Center Group, communications business and the hint at a potential NAND exit as positives for the company. However, the sustainability of the strength in the Data Center Group, driven primarily by price increases, as well as that of a rebound in enterprise/government sales is a key concern.

The analyst also noted weakness in PC CPU shipment volumes, reflecting Intel's ineffectiveness in supporting its PC customers.

"Net, while INTC is now benefiting from a cyclical uptick in hyperscale spending, our concerns around the impact of competition in 2020 and beyond cause us to remain negative on INTC's prospects," Bryson wrote in a note.

KeyBanc: Cost, Competitive Concerns Neutralized By Valuation

Intel's third-quarter results and relatively good guidance is due to its datacentric segments performing well, Twigg said.

The analyst sees the 10nm ramp and weak NAND pricing as gross margin headwinds, which may have negatively impacted fourth-quarter EPS guidance despite the revenue tailwinds.

"We remain somewhat concerned regarding the cost and complexity of new process technologies as well as potential long-term pricing risk as Intel pushes into new markets and aggressively defends its market share in PCs and servers," Twigg wrote.

That said, the firm sees the valuation as reasonably attractive. KeyBanc raised its fourth-quarter and 2020 estimates by a modest margin.

Tigress Financial: Further Upside Exist In Intel

Business performance continues to accelerate on strong data center chip demand, Tigress Financial's Ivan Feinseth said. (See his track record here)

The analyst said Intel is extending its leadership in edge computing by "integrating its processing power into Software Defined Networks." The company is on track to introduce 7nm chips in 2021.

The analyst sees further upside in Intel and recommends purchasing shares. The current dividend yield for Intel is 2.41%.

Price Action

Intel shares were rallying 7.3% to $56.06 at time of publication.