Intel soars as Wall Street celebrates early signs of recovery

The shares of Intel Corp (INTC.O) climbed 8% on Monday as the once-dominant chipmaker showed signs that it may be reversing its decline in market share as well as its sagging margins.

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The target price on the stock has gone up by at least 13 brokerages this year, despite the fact that it has underperformed rivals this year. They took these actions in response to Intel CEO Pat Gelsinger's remarks that the PC market - on which Intel built its reputation - had stabilized after several quarters of decline following several years of decline.

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"Even though we have no idea how quickly the sector will be able to recover, we do believe that Intel has already reached a trough in terms of revenue, gross margin, and profit for the first half of 2023," said Benchmark analyst Cody Acree, upgrading the stock to "buy".

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In a statement released Thursday, Intel forecasts that the company's gross margins will climb above 40% in the second half, as well as increased shipments of a key data center chip after a one-year delay that allowed rivals to take market share away from it.

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Analysts at TD Cowen said that the company was still not out of the woods, but this represented a "good starting point."

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It is estimated that Intel's market capitalization will rise by nearly $11 billion, to more than $130 billion, if its gains last. Its valuation, however, is significantly lower than that of its main rival Nvidia Corp (NVDA.O) and Taiwan's TSMC (2330. TW), which have been valued at approximately $672 billion and $420 billion, respectively, due to a tough couple of years.

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The analyst community, however, warned that Intel's forecast of recovery could be stymied by obstacles.

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Oppenheimer said he expected gross margins to be pressured for the foreseeable future due to aggressive process and new product spending as well as investments in IFS (Intel Foundry Services).

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The company reported its largest quarterly loss yet in the first quarter as it ramped up its production and invested in manufacturing facilities as part of its growth strategy.

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"We still face cash challenges," said Rosenblatt Securities, adding that "capacity investments really do not solve the problem of catching up to TSMC and Samsung in a monumental effort; as if dealing with AMD, Broadcom, and Nvidia as a group were not enough."