Intel’s fabs present major risk for Qualcomm stock, says Baird By Investing.com

On Monday, Baird maintained its Neutral stance on Intel Corporation (NASDAQ:), with a steady price target of $20.00. The firm highlighted significant risks associated with Intel’s fabrication plants (fabs), which are seen as a central uncertainty in the company’s turnaround efforts.

The commentary pointed out that Intel’s fabs are not well-suited for a potential acquisition by Qualcomm (NASDAQ:), given the latter’s fabless business model.

The analysis underscored the challenges Intel faces, including issues with backside power and 18A yield problems. Additionally, the process of transitioning core production back from TSMC to Intel’s own facilities, set to begin later in 2025, was cited as a complicating factor in the company’s recovery strategy. These concerns could lead to accelerated employee departures and further complicate Intel’s turnaround.

Baird’s commentary also touched on the strategic misalignment between Qualcomm and Intel. If Qualcomm were to acquire Intel, it would have to expend considerable effort to address Intel’s market share losses in x86 against competitors like AMD (NASDAQ:). This would occur while Qualcomm’s ARM-based chips potentially cannibalize its own market.

The firm noted that x86 architectures offer limited growth prospects compared to ARM architectures, which are increasingly gaining traction in data centers and personal computers.

The firm concluded that the potential synergies between Qualcomm and Intel are not compelling. From Baird’s perspective, Intel would be better positioned as part of a larger entity with a robust data center presence that could capitalize on Intel’s x86 market position and advanced packaging capabilities.

The recommendation suggests that Intel’s fabs might be more effectively managed as a separate entity, rather than integrated within Qualcomm’s operations.

In other recent news, the semiconductor industry is abuzz with potential shifts in major players’ strategies. Qualcomm Incorporated is reportedly considering an acquisition of Intel Corporation, as per Baird’s analysis. However, skepticism arises due to potential compatibility issues between Qualcomm’s focus on ARM-based architectures and Intel’s x86 dominance and fabrication capabilities.

Simultaneously, Apollo Global Management (NYSE:), a U.S.-based asset management firm, has proposed a substantial investment in Intel, potentially up to $5 billion. This development is still in the negotiation stage, and the final agreement remains to be seen.

Analysts’ views on Intel remain mixed, with Mizuho, Roth/MKM, and TD Cowen maintaining a neutral stance, while Exane BNP Paribas (OTC:) holds an underperform rating and KeyBanc Capital Markets continues with a Sector Weight rating.

On another front, Intel has confirmed its commitment to retain its majority stake in Mobileye, an autonomous driving technology company, despite speculation of a potential stake sale. These recent developments reflect a dynamic state of affairs at Intel, with potential investments, acquisition talks, and strategic decisions shaping the company’s trajectory.

InvestingPro Insights

Intel Corporation’s (NASDAQ:INTC) current market dynamics and financial metrics provide additional context to Baird’s neutral stance. From an InvestingPro perspective, Intel’s market capitalization stands at $93.39 billion, reflecting its substantial presence in the semiconductor industry. Despite being a prominent player, the company is trading at a high earnings multiple with a P/E ratio of 92.96, which may raise concerns about its valuation in the near term. However, the adjusted P/E ratio for the last twelve months as of Q2 2024 is 48.5, suggesting a different picture when considering future earnings expectations.

InvestingPro Tips highlight Intel’s long history of dividend payments, with 33 consecutive years of maintaining them, which could be an attractive point for income-focused investors. On the other hand, the company is also trading at a high EBIT valuation multiple, which may indicate that its earnings before interest and taxes are priced at a premium relative to the market. Moreover, analysts predict that the company will remain profitable this year, which is corroborated by the fact that Intel has been profitable over the last twelve months. For those interested in a deeper analysis, there are additional InvestingPro Tips available for Intel at https://www.investing.com/pro/INTC.

Considering the recent performance, Intel’s stock has experienced a significant decline over the last three months, with a 29.31% drop in price total return, and a more pronounced 48.16% fall over the last six months. This could be indicative of the market’s reaction to the challenges faced by the company, as outlined by Baird. For investors, these metrics may serve as a cautionary tale or a potential entry point, depending on their investment strategy and outlook on Intel’s ability to navigate its current challenges and capitalize on its industry position.

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