Rumor Has It That Nvidia Is About to Become a Major Intel Customer. How Should You Play INTC Stock Here?
While poor execution, leadership changes and questionable acquisitions have been cited as reasons for the downfall, the ex-CEO of Cadence Design Systems (CDNS) Lip-Bu Tan has been given the responsibility to turn around the company after former CEO Pat Gelsinger's failed return at the helm.
Known for forging formidable partnerships with the likes of Taiwan Semiconductor (TSM) while at the helm of Cadence, it seems like Tan is wielding his expertise to onboard Nvidia as a customer.
Nvidia to be Intel's Customer?
UBS analyst Timothy Arcuri recently said in a note that Intel is close to having Nvidia as a customer. The note states that a lower-power 18AP node is currently in development, and it might be that which is drawing the attention of Nvidia 'potentially for gaming applications.'
Historically reliant on TSMC as its foundry partner, Nvidia is now exploring Intel for manufacturing its smaller gaming GPUs. Currently, TSMC produces Nvidia's AI and gaming chips, but is apparently struggling to meet the rising demand for both. By shifting gaming GPU production to Intel while keeping AI chip production at TSMC, Nvidia could improve supply efficiency and reduce the risk of consumers turning to rival AMD's chips.
About Intel Stock
Founded in 1968, Santa Clara, California-based Intel is renowned for its semiconductor products, including microprocessors, chipsets, and related technologies integral to computing and communications devices.
Valued at a market cap of 102.2 billion, Intel stock has outperformed both Nvidia and AMD on a YTD basis with a 13% rise.
So, has Intel finally bid adieu to its problems? Let's have a closer look.
Financials
After reporting two consecutive quarters of earnings estimates misses, Intel's earnings finally came in ahead of the consensus estimates in the most recent quarter, although both the top line and bottom line witnessed a yearly decline. While revenues were down by 7% from the previous year to $14.3 billion, EPS corrected by 76% in the same period to $0.13. However, it came in ahead of the consensus estimate of $0.12.
For 2024, the company's net cash from operating activities came in at $8.3 billion compared to $11.5 billion in 2023. Overall, the company closed the quarter with a cash balance of $8.2 billion.
Notably, for Q1 2025, Intel forecasts revenue to be in the range of $11.7 billion to $12.7 billion, the midpoint of which would represent a 3.9% drop.
Operational Scenario
Under the leadership of its newly appointed CEO, Lip-Bu Tan, Intel stands poised for a potential turnaround. Tan's proven track record at Cadence Design Systems, where he transformed the company from a $2 billion valuation in 2009 to $51 billion by 2021, underscores his ability to drive substantial growth. This history of value creation brings optimism that he could replicate similar success at Intel.
Moreover, Intel's vertically integrated business model, despite recent setbacks, remains a key pillar for its long-term growth strategy. The company's substantial investments in research and development aim to keep it at the forefront of semiconductor innovation. A pivotal part of this plan is the Intel 18A process node, designed to rival TSMC's cutting-edge technology. If successful, RibbonFET, Intel's new transistor architecture, could deliver superior performance-per-watt compared to TSMC's N2 process. Additionally, Intel's intention to manufacture chips for external clients, rather than limiting production to its own CPUs, opens up new revenue opportunities in the foundry market.
The company's resurgence is further supported by significant government backing in both the United States and Europe. The U.S. CHIPS Act has earmarked up to $7.86 billion for Intel's fab expansions in Arizona, Ohio, and New Mexico. Across the Atlantic, Germany has committed roughly $11 billion in subsidies for Intel's planned Magdeburg facility. These subsidies substantially lower the financial risks associated with foundry expansion.
Ongoing geopolitical tensions between China and Taiwan have also created an environment where companies are eager to diversify their chip supply chains. Intel is well-positioned to capture a larger share of the global semiconductor market as firms seek alternatives to TSMC's dominance. This shift could provide Intel with a unique opportunity to secure new business and reduce dependency risks for its clients.
In addition to its foundry ambitions, Intel is sharpening its focus on core markets, particularly in PC and data center CPUs. Recent efforts to streamline its product lineup have already yielded promising results. The company recently unveiled its 14th-generation Meteor Lake PC chips, built on the Intel 4 node. Upcoming products such as Arrow Lake and Lunar Lake, developed on the Intel 20A and 18A nodes, are expected to help Intel reclaim performance leadership in client CPUs by 2025. Meanwhile, the Granite Rapids server CPUs are ramping up production, strengthening Intel's competitive position in data centers.
However, Intel's vertically integrated model is a double-edged sword. While it provides control over manufacturing and innovation, it also requires substantial capital investment. In 2024, Intel's capital expenditure reached $23.9 billion. This significant spending has resulted in slimmer margins and weaker free cash flow generation compared to its asset-light rivals.
Overall, as Intel strives to balance its growth ambitions with financial discipline, the coming years will be pivotal. If Intel successfully executes its strategic initiatives, it may not only regain its competitive edge but also reshape its role in the evolving global semiconductor landscape.
Analyst Opinions on INTC Stock
Analysts have deemed the stock a 'Hold' with a mean target price of $24.43, which is roughly in line with its current trading price. Out of 37 analysts covering the stock, one has a 'Strong Buy' rating, 31 have a 'Hold' rating, and five have a 'Strong Sell' rating.
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