Core Ultra And Meteor Lake Will Redefine CPU Landscape

Key Takeaways

• Intel's leadership in AI PC CPUs and upcoming product launches will drive revenue growth and enhance competitive positioning.
  
• Strategic data center offerings and Intel Foundry advancements aim for market share stabilization and margin improvement by leveraging strong CPU and AI capabilities.
  
• Increased competition, execution challenges, and an underdeveloped AI strategy threaten Intel's revenue growth, market share, and financial stability amidst macroeconomic uncertainties.

Catalysts

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• Intel's leadership in AI PC CPUs with the success of Core Ultra across Meteor Lake, Arrow Lake, and Lunar Lake positions the company to capture more market share, which is expected to drive revenues with the shipment of over 100 million systems by the end of 2025.
  
• The launch of Panther Lake on Intel 18A in the second half of 2025 and the subsequent introduction of Nova Lake in 2026 will provide strong performance improvements and cost efficiencies, likely enhancing net margins and competitive positioning.
  
• Intel's strategic roadmap includes strengthening its data center offerings with Granite Rapids and Clearwater Forest, with plans to stabilize market share by 2025, which should improve revenue and earnings stability.
  
• The focus on the AI data center market and system-level solutions at rack scale with Jaguar Shores represents an opportunity for revenue growth and margin improvement as Intel leverages its CPU position for AI-based inference applications.
  
• Intel Foundry's progress on Intel 18A and partnerships for advanced packaging, alongside significant CHIPS grants, aim at achieving breakeven operating income by the end of 2027, setting a path for margin improvement and operational efficiency.

Intel Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Intel compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Intel's revenue will grow by 7.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -35.3% today to 12.8% in 3 years time.
• The bullish analysts expect earnings to reach $8.4 billion (and earnings per share of $1.94) by about April 2028, up from $-18.8 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 19.6x on those 2028 earnings, up from -4.5x today. This future PE is lower than the current PE for the US Semiconductor industry at 20.5x.
• Analysts expect the number of shares outstanding to grow by 1.71% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.96%, as per the Simply Wall St company report.

Intel Future Earnings Per Share Growth

Risks

• Intel faces increased competition in the PC and data center markets, which could lead to aggressive pricing strategies impacting revenue and net margins.
  
• Execution challenges in meeting commitments and technology roadmaps, such as delays in products like Clearwater Forest, may hinder revenue growth and market share recovery.
  
• The reliance on delivering more wafers internally and improving Intel Foundry's performance to achieve breakeven by 2027 could strain financials if execution falters, impacting operating income and overall earnings.
  
• Intel's AI data center strategy appears underdeveloped, particularly in the cloud-based market, which might limit its ability to capture emerging AI-driven revenue opportunities.
  
• Uncertainty around macroeconomic factors, such as potential tariffs, could disrupt client purchasing patterns, impacting revenue consistency and operating cash flows.

Valuation

• The assumed bullish price target for Intel is $26.19, which represents one standard deviation above the consensus price target of $22.9. This valuation is based on what can be assumed as the expectations of Intel's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $31.0, and the most bearish reporting a price target of just $17.7.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $65.5 billion, earnings will come to $8.4 billion, and it would be trading on a PE ratio of 19.6x, assuming you use a discount rate of 11.0%.
  
• Given the current share price of $19.57, the bullish analyst price target of $26.19 is 25.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.