Intel stock is rising after the microprocessor manufacturer on Wednesday unveiled additional details around its data centre roadmap as well as its view of the market opportunity over the coming years.
“We view the company's optimism around delivering 3nm products in 1H 2024 as being the primary catalyst driving the sharp acceleration in the stock during and post the event,” Wedbush analysts wrote in a note to clients.
Sierra Forest coming in the first half of 2024 was the single most important announcement at the event, the analysts wrote.
“We see the product itself which introduces Intel efficiency cores as less interesting, given Intel will lag AMD (Bergamo) by nearly a year in bringing this more power efficient architecture to market,” they wrote.
“But, Sierra Forrest is also Intel's lead 3nm architecture. As such, if Intel executes on Sierra Forrest (and then Granite Rapids which is also built on Intel 3) it will have effectively moved from 10nm product introductions to new products built on 3nm in less than 18 months and thus finally have levelled the manufacturing playing field.”
The analysts said, with the misexecution of manufacturing the primary stumbling block across Intel's product portfolio over the last five-plus years, a return to near parity would be a major achievement with positive implications across Intel's portfolio.
“In addition, we believe execution on its manufacturing roadmap would go a long way to enabling Intel in the foundry market. Having said all this, Intel still has to execute its roadmap, a result that has been a constant challenge for the company,” they wrote.
The analysts noted that Intel’s story around AI was less compelling.
“Intel had initially been slow to address the accelerator market, perhaps in part because of a view that much of these workloads could be handled by traditional CPUs,” they wrote.
“And with Intel seemingly still projecting general compute will play a larger role in AI (with Intel projecting a 60%/40% split favoring CPUs over accelerators in 2027), we wonder if that philosophy is still weighing on Intel's efforts.”
They added that, more importantly, they have struggled to find areas where Gaudi 2 or Intel's GPU efforts have gained significant traction to date.
“Net we continue to struggle to ascribe incremental value to Intel's efforts on this front without more evidence of market acceptance,” they wrote.
Further, they noted they liked OpenAPI in theory, as the idea of a single instruction set that can be used across numerous products is interesting.
“However, if Gaudi is Intel's key initiative for large models, we wonder why it hasn't yet integrated OneAPI,” they pointed out.
“Similarly, Intel's less crisp execution on its FPGA portfolio (with Xilinx having gained significant share since Intel's acquisition of Altera) or less clear path with other ancillary silicon (IPUs, DPUs, etc.) makes the value of a single instruction set somewhat less compelling.
“Having said this, we believe Intel's struggles with manufacturing have weighed significantly on some of its hardware efforts (early accelerators, Altera competitiveness, etc.) and assuming Intel can execute on 3nm and in turn build more compelling hardware, the value created by OneAPI should grow synergistically with Intel's IC improvements.”
Following Intel’s event, the analysts reiterated their ‘Underperform’ rating on the stock with a US$20 price target, based on an earnings multiple of about 12 times (net debt) applied to their FY24 earnings outlook.
Intel shares had added 2.7% at US$32.38 on Thursday morning.
Contact the author at emily.jarvie@proactiveinvestors.com
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