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Intel stock experienced its worst day of the year after analysts pointed to AMD as the reason for data center weakness.


Intel Group shares experienced its worst day of the year so far on Friday, after an earnings report beat expectations but showed a disturbing drop in data center sales. .

Intel
INTC,
-5.32%

Shares fell 5.3% to $ 59.24 on Friday, the worst day since October. Chip manufacturer publish first quarter earnings on Thursday afternoon, easily beating general expectations but showing weakness perhaps in the most important segment at the moment: Data center sales.

Intel server chip sales fell more than 20% year-on-year, lacking estimates, due to data center sales becoming increasingly important amid an increase in workload levels. Cloud computing and artificial intelligence require great computing power. Intel’s management noted a drop from last year’s totals as well as the “digestion” of major cloud providers, meaning they’ve bought enough chips and are waiting to buy more.

Opinion: The new CEO of Intel should put this issue first

Analysts added another reason Intel didn’t mention: competition. Specifically, the emergence of Advanced Micro Devices Inc.
AMD,
+ 4.68%

as a real competitor in the server business and expected profitability for ARM Holdings PLC.

“Still undisclosed, we believe this was also driven in part by a loss of stakes in both AMD on-board and in-house ARM design in some of its clients,” Cowen analysts wrote. to be determined, ”wrote Cowen analysts, while maintaining a better rating and $ 80 price target.

“We think this is at least partly due to competitive pressure from AMD,” wrote Oppenheimer analysts, with performance ratings in stocks. “Intel is defending its platform.”

Needham analysts argued: “We believe that the loss of market share and the associated pricing pressure are the most likely factors contributing to DCG’s sharp decline in revenue and profitability, and investors will find out next week when AMD reports, ”argued Needham analysts, while maintaining ineffective ratings.

AMD shares rose 4.7% on Friday, and Nvidia Corp.
NVDA,
+ 2.79%

– which trying to get Arm and plan your own server CPUs based on Arm technology – 2.8% increase. Although it won’t be a few years before Nvidia’s announced server CPUs hit the market, analysts have anticipated good competition for the x86 standard that Intel and AMD use for server chips.

Full income insurance: Intel shares fell despite declining profits, as data center sales fell more than 20%.

Jefferies analysts write: “We delve into the companies that moved software to Graviton (ARM server CPU) from Intel x86, posting price performance improvements between 40% -50%. ”Wrote Jefferies analysts while maintaining a hold rating and $ 59 price target.

“We estimate that over the past five years, Intel processor revenue share in the data center has dropped to 68% from 98% as Nvidia and AMD gained market share,” said Jefferies analysts. , ”Added Jefferies analysts. “We think Intel’s market share loss will increase rapidly as ARM CPUs join Nvidia and AMD as the data center market share gainers.”

Another potential selling point is availability. Mizuho analysts report that the wait time for customers to order Intel’s Ice Lake server chips is about 1 week, while customers buying AMD’s Milan and Rome chips have to wait three months or more.

New Intel CEO, Pat Gelsinger, promised on Thursday afternoon he would fight for market share in the server space, without mentioning exactly who he planned to fight and move on. plan to increase your sales and income. Analysts believe his plans may have varying degrees of success, but that means Intel will spend heavily in the short term with whatever results will be longer.

See more: Intel executives said the global chip shortage would last for another two years

Rosenblatt Securities analyst Hans Mosesmann, Rosenblatt Securities analyst Hans Mosesmann wrote: “Intel will have a challenging 2-3 years of stock loss, margin pressure and higher execution risk. ever. Sell ​​ratings and a $ 40 price target.

“The cost increase is substantial and early; Truist analysts write while lowering their price target to $ 69 from $ 73.

At least four analysts have reduced their price targets for stocks in response to earnings, even though none of them changed their rating for stocks. Overall, 17 out of 36 Intel analysts rate the stock the equivalent of a single purchase, according to the FactSet table; 12 share rate is hold and 3 shares are called sell. Friday’s median price target is $ 66.70, 12.6% higher than the upcoming price.

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