Intel stock turnaround 'may be over' says Needham, cuts rating
Needham & Company analysts downgraded Intel Corporation (NASDAQ:INTC) shares to Hold from Buy, citing several concerns impacting the company's performance.
Yesterday’s “unexpected EPS reset” and headwinds in gross margin contribute to a less compelling 12-month risk-reward scenario, according to analysts.
The data center and AI group business faces challenges from accelerated computing architectures and increased competition in the CPU market, particularly from AMD (NASDAQ:AMD) and ARM (ARM).
The management's optimistic PC TAM estimates are viewed as “aggressive”, and the potential AI PC upgrade cycle may take time to materialize.
Moreover, there are apprehensions about gross margin expansion falling short of expectations due to rising depreciation and start-up costs.
Valuation is also considered unattractive when compared to higher-growth AI-focused companies. Furthermore, contributions from Intel Foundry Services (IFS) are anticipated to take several years to significantly impact the overall financial model.
Given these concerns about the present challenges and future growth potential, Needham has opted for a Hold rating on Intel shares.
“After a string of success, it seems the easy part of the turnaround may be over,” analysts said in a note.
“We view higher valuation, lower revenue/EPS estimates, increasing competition (in core and non-core markets), and distant IFS revenue all contributing to a tough road ahead.”
Summit Insights analysts also downgraded the stock's rating.
Intel stock fell 9.3% in pre-market Friday.
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