HSBC recently upgraded Intel's stock to "Buy" with a new $95 price target, suggesting a significant upside.
This optimism isn't about the whole company, but a new way of looking at it. HSBC's analysis focuses purely on Intel's core business—designing and selling its own Central Processing Units (CPUs)—especially for powerful servers. They've essentially set aside the company's struggling foundry business (which makes chips for other companies) in their valuation, arguing its future is too uncertain for now.
So, what's driving this confidence in the core business? The story really gained momentum over the past month. First, reports surfaced industry-wide about a severe shortage of high-end CPUs, with lead times for orders stretching from weeks to months. Second, following these shortages, Intel confirmed it would raise CPU prices by 10-15%. When supply is tight and demand is high, companies regain pricing power, meaning they can charge more without losing customers. This is a direct path to higher profits and is exactly what HSBC's forecast is built on.
This situation didn't happen overnight, though. For months, there were early signs. Intel had already started prioritizing its more profitable server chips over PC chips. Furthermore, the launch of its new, more competitive Xeon 6 server processors laid the groundwork to meet the intense demand from data centers and AI. Government support like the CHIPS Act also helped fund the capacity that is now running at full tilt.
And while HSBC values the foundry at zero, recent positive developments can't be ignored. Intel hired a seasoned executive from Samsung to lead the division, and even its main rival, TSMC, acknowledged Intel as a "formidable competitor." These steps don't generate immediate profit, but they reduce the risk of the foundry becoming a major drag on the company, making the core business look even more attractive.
Ultimately, HSBC's upgrade is a bet that the market is undervaluing Intel's strong, profitable core CPU business by focusing too much on its foundry turnaround story. The real test will come with Intel's upcoming earnings report on April 23rd, where investors will be listening closely for confirmation of these price hikes and strong demand.
- Core Business: In this context, it refers to Intel's primary operations of designing and selling its own branded CPUs, separate from its newer foundry business.
- Pricing Power: A company's ability to raise prices for its products or services without losing significant market share.
- Xeon 6: Intel's latest generation of server processors, designed for data centers, AI, and high-performance computing.