Ramp-Up Of Granite Rapids And Launch Of Clearwater Forest Will Strengthen Data Center Market Position By 2025

Key Takeaways

• Strategic product launches and AI investments are set to drive revenue growth and enhance market share in consumer and data center sectors.
  
• Operational efficiencies and cost management within Intel Foundry aim to improve margins and stabilize earnings by optimizing resources and partnerships.
  
• Intel's focus on execution and innovation is crucial to countering competitive pressures, financial losses, and market uncertainties impacting revenue and profitability.

Catalysts

Designs, develops, manufactures, markets, and sells computing and related products and services worldwide.

• Intel's launch of Panther Lake on the Intel 18A process in the second half of 2025 is expected to drive volumes and improve profitability by 2026, impacting revenue and gross margins positively.
  
• The ramp-up of Intel's Granite Rapids and the subsequent launch of Clearwater Forest (the first Intel 18A server product) are set to stabilize and potentially grow Intel’s market share in the data center market by 2025, likely benefiting revenue and market penetration.
  
• Investments in AI PC consumer markets and a focus on enterprise products, including the launch of AI CPUs with Intel vPro for Windows 11 migrations, are expected to enhance sales and increase Intel's gross margins due to higher demand in both consumer and enterprise sectors.
  
• The operational efficiencies and advanced packaging progress within Intel Foundry, including collaboration with partners like Tower Semiconductor, aim to improve gross margins and operating income by 2027, contributing to the financial turnaround.
  
• Intel's strategic cost management and focus on achieving breakeven operating income for Intel Foundry by 2027, with revenue from both internal and external EUV wafer processes, will enhance earnings stability and reduce operational losses.

Intel Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Intel's revenue will grow by 4.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from -35.3% today to 8.2% in 3 years time.
• Analysts expect earnings to reach $5.0 billion (and earnings per share of $1.06) by about March 2028, up from $-18.8 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $8.4 billion in earnings, and the most bearish expecting $2.4 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 28.1x on those 2028 earnings, up from -4.8x today. This future PE is lower than the current PE for the US Semiconductor industry at 30.1x.
• 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 10.37%, as per the Simply Wall St company report.

Intel Future Earnings Per Share Growth

Risks

• Intel's focus on improving execution and delivering better products to regain customer confidence indicates that recent execution issues have impacted competitiveness, which could affect revenue and market share.
  
• The increased competition in the PC and data center markets, specifically from new entrants in the AI PC category and data center, could pressure Intel’s pricing and result in narrower product margins.
  
• Intel Foundry is currently operating at a financial loss with negative gross margins and a significant operating loss. If they fail to achieve their breakeven operating income goal by 2027, this could have sustained negative impacts on overall earnings.
  
• The company's dependency on future success of products using new process technologies like 18A presents a risk. Delays or issues in these process technologies could impact their ability to deliver competitive offerings, affecting revenue and profitability.
  
• There is uncertainty around market conditions such as potential tariffs and macroeconomic factors which could lead to shifts in demand and purchasing behavior, impacting Intel’s future revenue streams.

Valuation

• The analysts have a consensus price target of $22.751 for Intel based on their expectations of its future earnings growth, profit margins and other risk factors. 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 analyst's consensus, you'd need to believe that by 2028, revenues will be $60.6 billion, earnings will come to $5.0 billion, and it would be trading on a PE ratio of 28.1x, assuming you use a discount rate of 10.4%.
  
• Given the current share price of $20.64, the analyst price target of $22.75 is 9.3% 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.