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Truist analyst William Stein believes that Intel CEO Lip-Bu Tan has a long road ahead of him when it comes to turning around the firm's business despite Softbank's decision to invest $2 billion into the company. In a fresh analyst note today, Stein kept a Hold rating for Intel's shares and stuck with a $21 share price target, as he shared that the keys to Intel's success lie in the firm's ability to utilize its culture, customers and capabilities to transform its business. Intel's shares have lost 7% today as they continue to fluctuate amidst investor worries about deep set problems about the firm's profitability and its ability to not only cater to the AI industry but also keep up with smaller rival AMD in the data center space.
Intel's Successful Turnaround Efforts Have Taken & Will Continue To Take Time, Says Investment Bank
Intel's shares, which jumped by 7% yesterday, have now lost all these gains today as Wall Street continues to ponder the firm's future. The shares jumped after the Japanese investment conglomerate Softbank announced that it would take a $2 billion stake in the firm. These gains came after the stock had lost ground following reports that the Trump administration was seeking to convert Intel's grants into equity, as investors wondered about the extent of the stock's dilution.
Intel's balance sheet troubles, particularly in the form of costly agreements that require regular payouts to asset managers, have left little room for earnings growth. Consequently, the market has pinned its hopes on the spinoff of the foundry business to divest these agreements from the primary company's financials to grow profitability.
However, Intel CEO Lip-But Tan has ardently defended the firm's foundry business. Tan, who took over the helm at Intel earlier this year, believes that customer satisfaction is the key to Intel's success. Tan took over after his predecessor Patrick Gelsinger made aggressive and costly investments in production but failed to capitalize on the red hot demand for AI products.
Looking to turn affairs around, the new executive, In his first letter to employees, he remarked that under his leadership, the firm would become a "world-class foundry" by focusing on engineering and products.
In his note, while Truist analyst William Stein appreciates Softbank's $2 billion Intel stake, he outlines that nothing except time can cure Intel's ills. "Incremental capital helps, but INTC's solution lies in culture, capabilities, & customers," writes the analyst. His firm sees Intel "as still enduring through a turnaround phase" which revolves around culture, capabilities and customers. Achieving these objectives has "already taken time," says the analyst, who cautions that it "will take more time" for Intel and CEO Lip-Bu Tan to deliver results.
Intel's woes have created concerns about US chip manufacturing supremacy since it is the only American firm capable of manufacturing high-end chips. The shares have struggled this year, as apart from worrying about its profitability, investors are also wondering whether Intel might have to write off its advanced manufacturing processes if it does not garner sufficient external customer interest.
Stein notes that "If and when [these] objectives are satisfied, we would consider INTC as entering an execution phase." Yet, entering the execution phase will "also take time," believes the analyst. As a result, the uncertainties associated with the long time horizon and Intel's success force the firm to maintain its current rating and share price target for Intel's stock.
About the author: Ramish is a seasoned technology writer and editor with more than a decade of experience. He specializes in semiconductor fabrication and market analysis. With a background in finance and supply chain management - via his bachelors in Finance and a micromasters in supply chain management from MIT - Ramish combines financial rigor with deep industry insight to deliver accurate and authoritative coverage.
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