Intel's traditional business hasn't grown fast enough to cover its manufacturing costs: Chris Caso

We delivered a very solid Q1. You know, we met revenue. We beat on EPS. You know, we gave a outlook for first half to second-half, a much stronger second-half outlook as we saw with growth across every business forecast for the second-half and somewhat like the market indicates, maybe a little bit of market weakness in the first half of the year. So we’re working through that. That was Intel CEO Pat Gelsinger speaking. John Ford, the chip maker reported mixed results and offered a weak guidance now for the second quarter. Bring in, want to bring in Wolf Research senior analyst Chris Costell. OK. So for some analysis on this whole situation, because you look at the stock and it has been an underperformer, maybe that’s putting it politely, Chris, yes. And we have an underperform rating on this on the stock. You know for the quarter itself, there is some weakness here in the first half of the year. We’ve gone through the inventory correction we had last year, but just the end markets haven’t come back as strongly as perhaps Intel would have hoped. In both the server and the PC side, there is some some gross margin pressure as well. But really I think what’s what’s, what’s really important for the stock is something I said at the beginning of the month when they gave some details about the manufacturer business. And the disappointment there was that the manufacturing part of the business wouldn’t get to break even until 2027. And that’s a lot longer than than people that hope for. You know, what’s happened here is that Pat Gelsinger has done a very good job in fixing Intel manufacturing. The problem is that comes at enormous cost. And you know what’s happened in the four years since they started this is the markets changed and the change was obviously AI and Intel’s not participating fully in that. And the rest of Intel’s markets, such as the traditional CPU server business just isn’t growing fast enough to cover the massive cost. And so the Chris, I think there’s two questions. One is will it ever grow fast enough? Where is or is the need for even faster chips going to make those chips that they’re making effectively obsolete And the investments that that Pat Gelsinger is making today, do you think they ultimately actually will pay off or that that somebody else is already going to leapfrog them again? Well, you know there’s still going to be growth in the traditional server market, just just not as much growth as there has in the past because you know, more of that money is flowing to AI and GPUs and and specifically NVIDIA. What they hope now is that the other business they’re putting on top of this is, is a foundry business where they would compete with TSM and it’s far out in time, you know that’s kind of you know 2728 before that that business really gets going. It’s very uncertain. TSMC is a very strong competitor and you know when we when they started this journey, the foundry business at least from an investor standpoint was looked at to be optionality. It’s not optionality anymore. That’s what’s needed to drive profitability for Intel. So what do you think what do you think this company should be worth stock right now trading at 3246 yeah so or or price target now is is is $29.00. You know what what in in some of those disclosures they made the beginning of the year the the the the the metrics they provided you know gave you you know the hope for you know somewhere in the range of $4.00 of earnings but you know car in a far out in time. I I think it’s sort of a 2728 event right now. You know for right now you know our preference is you know for some of the faster growing parts of the market you know NVIDIA, AMD you know Micron in memory where they’re fully participating in AI right now. You know and the problem you have also with with semiconductors is it’s a cyclical business. So by the time you get to potentially the payoff on Intel in 2728, we could be going through another industry downturn. So our view is you know it’s a stock that that we take another look at you know after we’re through the cycle perhaps into the next cycle. In terms of finally just real quick stack rank if you will, the chip stocks or the chip companies on our screen we’ve got Intel, NVIDIA, Qualcomm and Advanced Micro. I don’t know who else you want to throw in that mix if you were to stack ranking them in terms of how you’d want to own them or not tell the viewers, right? So Nvidia’s is our top pick. It’s been our top pick for a while for obvious reasons. We think there’s a lot of legs to go in AI. We like AMD as well. We think AMD is the #2 to NVIDIA just like they’ve been #2 to Intel for for a long, long time. We like Qualcomm also on you know, the prospect of a handset recovery. But you know what I put even higher on that is again AI related names such as Micron that for memory and then the semi cap equipment companies like Applied Materials that provides the equipment for that.