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Intel faces a costly and uncertain path back to glory, analyst warns of ‘pain’ ahead


One analyst argues that the recent enthusiasm for Intel Corp.’s new executives and his ambitious plans to transform the company bypass the risks and costs involved in the chip maker’s strategy.

Raymond James’s Chris Caso downgraded Intel’s shares to poorer levels of market performance, writes Intel
INTC,
+ 0.80%

It faces a costly and uncertain journey as it tries to recover from a series of mistakes and reassert its dominance in the chip scene.

Shares of Intel have risen 21% since the company announced that Pat Gelsinger, who served as CEO of VMware Inc.
VMW,
+ 2.90%
,
will take the top spot at Intel. Gelsinger recently launched plans to Intel expand production capacity and launch a casting business that would create chips for other companies, but Caso is concerned about the prospects and cost of success.

Opinion: The new CEO of Intel takes bold steps in the manufacturing sector

“Our underperformance ratings not only reflect the risk that Intel won’t hit that target, but also the pain it might endure in pursuing that goal in terms of capital, market share. lost and the changing landscape in the data center will make the industry less dependent on Intel, ”he wrote in a note to customers.

Caso worries that demand for personal computers has been “significantly pulled forward” due to the pandemic, which could eventually lead to a reversal from the average. The problem for Intel is the “unfortunate” average reversal that can happen when Intel needs to increase investment.

Although Intel may get some government support, Caso thinks the company’s plans to open a foundry will be very expensive. “Hence, we believe that the fall analysis date could be a negative catalyst, when investors receive invoices for that investment,” he wrote. In addition, he is also skeptical that the company has the technology to compete effectively in this business.

“For investors who have higher confidence in change than we do, we simply don’t see a reason to bet that right now as any change will take place in the next few days. next year, with many cyclic and Intel-specific issues that could affect the estimate in the meantime, ”wrote Caso.

Opinion: VMware eventually becomes its own in the Dell version, but cloud strategy remains

He’s part of other chip names, including Nvidia Corp.
NVDA,
+ 4.34%
,
which he upgraded to strong buy from better performing Thursday, a sign of “his confidence in both the short and long term”. Caso also began reporting on Advanced Micro Devices Inc.
AMD,
+ 5.01%

with better ratings and a $ 100 price target, arguing the company has a “long term engineering advantage over Intel”.

AMD shares have lost 7% in the past three months, as Nvidia shares are up 24% and Intel shares are up 14%. S&P 500
SPX,
+ 0.91%

up 10% over that period, while the PHLX Semiconductor Index
NUMBER X,
+ 1.22%

has increased 9%.

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