Intel’s trajectory toward a full recovery may still be two years away despite slight sales beats in recent quarters, analysts at Bank of America warned Friday.
The investment bank reiterated an “Underperform” rating and a price target of $21 for Intel Corp (NASDAQ:INTC, ETR:INL), signaling limited growth prospects in the near term amid stagnant sales projections and rising operational costs.
Its outlook for 2025 remains subdued, with Bank of America lowering its revenue growth estimates to a modest 3-5% from the previous consensus of 7-8%.
Intel’s gross margins are expected to hover around 40%, and free cash flow may only break even, suggesting further pressure on stock performance.
Intel's third-quarter manufacturing loss of $5.8 billion – almost double the previous quarter’s loss – underscores operational challenges that the company aims to mitigate through outsourcing initiatives, particularly with Taiwan’s TSMC, over the coming quarters.
Bank of America did highlight some positives for Intel’s longer-term strategy, including the monetization of its Altera programmable solutions business, which could attract a private equity partnership by early 2025. Additionally, Intel’s investments in US manufacturing capacity offer potential geopolitical advantages, analysts believe, particularly with federal funding from the CHIPS Act expected to support domestic fabrication.
However, Intel’s lack of competitiveness in AI continues to weigh heavily on its outlook. “No AI traction” was reported for both PC and server segments, where Intel is shipping below AMD and seeing flat data center CPU sales.
AMD, by contrast, posted a 40% year-over-year gain in PC segment sales and 25% in data centers. The company’s upcoming 18A process node, touted as a competitive catch-up, also faces high initial costs, with Bank of America warning that the benefits may be slow to materialize.
Beyond product development, Intel faces external pressures as custom chips based on ARM architecture gain traction. Google recently launched ARM-based cloud instances with Marvell’s Axion CPU, adding to the competitive landscape alongside Amazon’s Graviton, Microsoft’s Cobalt, and Nvidia’s Grace processors.
Talent retention is another concern as Intel scales back R&D expenses by up to 15% in 2025, lagging behind rivals like Nvidia, which is poised to expand R&D spending by approximately 30%.
With a continued focus on restructuring and cost optimization, Intel aims to reduce operational expenditures from $20 billion in 2024 to $17.5 billion in 2025. Yet, with a tepid AI presence and high operational costs, Bank of America’s outlook suggests Intel’s recovery remains an uphill journey.