VALUATION HIGHLIGHTS

1. Client Computing Group constitutes 53% of the Trefis price estimate for Intel's stock.
2. Data Center Group constitutes 27% of the Trefis price estimate for Intel's stock.
3. Internet of Things Group constitutes 12% of the Trefis price estimate for Intel's stock.

WHAT HAS CHANGED?

Q3 FY 2024 Earnings

Intel posted a mixed set of Q3 2024 results. While revenue declined 6% year-over-year to $13.3 billion, beating estimates, adjusted net losses came in at $0.46 per share. Intel has been contending with increasing competition in the server and PC space from AMD, which has impacted pricing. However, things appear to be looking up. Intel has guided Q4 revenue of $13.3 billion to $14.3 billion, the mid point of which is well ahead of street estimates.

Intel's AI bets

Intel is aiming to increase its presence in the AI space with its Gaudi 2 and upcoming Gaudi 3 accelerators, which are designed for AI workloads in data centers. The company is looking to compete on price, offering systems with eight Gaudi 2 accelerators for around $65,000 - about one-third the price of comparable platforms. Although Intel faces challenges, given Nvidia's early lead and software ecosystem for AI development, the market could seek alternatives to Nvidia, given its high pricing. The company expects to generate around $4 billion in AI chip sales in 2024, with its latest Gaudi 3 chips likely to generate about $500 million in revenue. If sales surpass expectations, it could change the narrative around Intel's AI bets and stock.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Intel's value that present opportunities for upside or downside to the current Trefis price estimate for Intel:

• Intel has seen strong growth in its Data Center Group over the last few years. The revenues stood at $15.2 billion in 2023, and we forecast them to grow to over $20 billion by the end of our review period. However, Intel is facing mounting competition in the data center space, with rival AMD also gaining ground. If Intel's data center revenues remain flat at current levels of about $16 billion, then we could see a downside of about 10% from our current price estimate.
  

• The Data Center Group's EBITDA margins have declined from over 50% in 2020 to around 18% in 2023. While we forecast that margins will recover to about 50% by 2030, driven by new launches such as the Sierra Forest chip and Granite Rapids chip there could be a downside of about 20% if margins remain flat at current levels.

For additional details, select a driver above or select a division from the interactive Trefis split for Intel at the top of the page.

BUSINESS SUMMARY

Intel is best known for manufacturing and selling microprocessors used in servers, desktops, and notebooks. Microprocessors are a PC's central processing unit (CPU) or the brain behind the computer. A microprocessor is the single most important component that drives a computer's power and performance.

SOURCES OF VALUE

Microprocessors and chipsets used in servers, desktops, and notebooks are the major sources of revenue for the company.

KEY TRENDS

Intel's push into foundry business

Intel is also betting heavily on becoming a foundry player, producing chips for other semiconductor companies, and taking on the likes of TSMC and Samsung Electronics. However, the business is facing some challenges at the moment, due to technological missteps. Intel reported an operating loss of $7 billion for its manufacturing division (which still primarily caters to its own chips) for 2023, and the company indicated that it doesn’t expect to break even until 2027. Intel has also fallen behind the curve in terms of manufacturing process technology and it remains to be seen if the company can catch up with the likes of TSMC. However, things could improve as Intel rolls out its new 18A process, the company’s most advanced manufacturing technology to date.

Market Share Loss To AMD

AMD's Ryzen processors are in high demand of late. Ryzen CPUs have been able to deliver competitive power at a relatively lower cost. As such, AMD has gained some market share from Intel over the past few quarters. AMD is currently working on 7nm chips, which will roll out around the same time as Intel's 10 nm chips. AMD could gain further share in the coming quarters over Intel with its new chips, which it plans to launch for all major products - Ryzen, Radeon, and EPYC processors.

Beyond Ryzen, AMD's growth in the server market is more worrying for Intel. AMD's EPYC processors have been gaining a share amid strong performance at a lower price point.

On-Going Server Virtualization

Server virtualization is essentially server consolidation that enables running multiple applications on a single server instead of on multiple servers. Server virtualization is driving a shift in the mix towards higher-end servers, which require multi-core processor servers that tend to be more complex and more expensive than traditional single-core processors.

Increasing Importance of Smartphone and Tablet Chips

While PC shipments have declined drastically in the last few years, mobile shipments (particularly smartphones and tablets) have grown at a robust rate. Though the growth rate has slowed as developed markets near saturation, mobile shipments continue to expand at a fast pace.

PC Market Opening up to ARM (Advanced RISC Machine)

New Windows versions are ARM-compatible which has opened up the market to ARM-based processor manufacturers. This market was traditionally been dominated by x86 processor architecture. This will challenge the dominance of Intel which could lose some market share in the future, on account of increasing competition.