Intel stock got a downgrade from Citi. Partnership with Nvidia won't help?

Citi criticized the hype around Intel shares after the announcement of its partnership with Nvidia. According to the investment bank, the US chipmaker is likely to "continue to struggle" despite new investments. Analysts downgraded the stock to "sell" but raised its target price by 21%. Intel shares were down 3% in trading on Sept. 19, after their best gain in 38 years a day earlier.

Citi analyst Christopher Danely downgraded his recommendation on Intel shares from "neutral" to "sell", CNBC reported. At the same time, he raised their target price from $24 to $29. The updated estimate suggests a 2% decline from the closing price of September 19.

In trading on Friday, the chipmaker's shares lost 3.2%, falling to $29.58. At the same time, a day earlier, shares rose by almost 22.8% after the news of Intel's partnership with Nvidia, in which the AI-chip maker will invest $5 billion in the struggling processor maker. This day became the best for securities chipmaker since October 29, 1987, when quotes jumped 26.4%, writes CNBC.

The investment bank doesn't believe the partnership with Nvidia will help solve Intel's problems. "We are downgrading Intel ... as we believe the price already incorporates success in its advanced contract manufacturing business, although the likelihood of such success is, in our view, extremely Ma," Danely wrote in a note quoted by CNBC.

As part of the agreement, Intel will not only embed Nvidia graphics into its CPUs, but also produce them for the partner's AI platforms. However, Citi doubts that integrating Nvidia graphics will give Intel a real advantage over AMD, which already offers higher-performance CPUs at lower prices.

"We doubt this will make Intel CPUs more competitive: third-party graphics integration does not strengthen the CPU, as it is the CPU that remains the primary driver of PC performance," Danely wrote.

Citi also emphasized that Intel and Nvidia's AI collaboration is unlikely to generate serious profits, as the estimate of the potential market for joint solutions is only between $1 billion and $2 billion.

The partnership with Nvidia helps Intel to solve several tasks at once, Barron's writes. First of all, the company gets additional liquidity: in the context of reduced capital expenditures and freezing of construction of new production facilities, $5 billion from Nvidia became an important signal to the market. In addition, the acquisition of a 10% stake in Intel by the U.S. government, Nvidia's investments, and earlier investments by SoftBank, reinforce investor confidence that President Donald Trump's administration will not let Intel fail, according to Barron's. This was the reason for the rapid growth of quotations after the announcement of the deal on Thursday. Against the backdrop of this news, Intel shares have risen more than 50% since the beginning of August.

However, analysts note that the deal does not solve the main problem of Intel - the lag in production technologies, Barron's noted. Contract manufacturing, on which the company relies, is still inferior to the level of Taiwan's TSMC, and Intel still does not have large external customers. Without outside fab utilization, the business will remain unprofitable. And Nvidia has yet to make a clear promise to place orders with Intel. The Financial Times calls the deal "financially symbolic" but an important political signal.

"I realize that in the short term investors may be buying Intel stock on the back of momentum, but to me this is no reason to revise the company's valuation or significantly raise its growth outlook," Mizuho analyst Jordan Klein wrote Thursday. - Personally, I'm not yet ready to sell other, higher-quality securities to start chasing Intel."

However, other analysts are optimistic about the deal. According to Saxo Bank strategist Charu Chanana, cited by Barron's, the agreement gives Intel additional reputational stability and "sows the seeds of the possibility that Nvidia in the future will start using Intel as an alternative contract manufacturer if TSMC's capacity becomes overloaded or geopolitics intervene."

Benchmark analyst Cody Acree raised his rating on Intel stock from "hold" to "buy," calling the agreement with Nvidia a "game changer." Acree set a target price of $43, which implies a nearly 45% upside from the closing price on September 19.

"Thursday's announcement is an important fundamental break in Intel's long-term competitive position and an expression of serious confidence by the AI industry leader in Intel's technology roadmap," Barron's quoted his note as saying. The analyst also noted that Benchmark expects short-term volatility after the sharp rise in Intel's stock price, but recommends that "investors with a fundamental approach use the likely weakness in price as an opportunity to build a long-term position."

According to LSEG, 39 of 47 Wall Street analysts covering Intel maintain a neutral recommendation on the stock. Analysts' overall sentiment remains subdued, with their consensus target price of $23.4, according to MarketWatch, down 21% from Friday's closing price.

This article was AI-translated and verified by a human editor