VALUATION HIGHLIGHTS

1. Client Computing constitutes 63% of the Trefis price estimate for Intel's stock.
2. Data Center & AI constitutes 19% of the Trefis price estimate for Intel's stock.
3. Network And Edge constitutes 14% of the Trefis price estimate for Intel's stock.

WHAT HAS CHANGED?

Q4 FY 2024 Earnings

Intel posted a better-than-expected set of Q4 2024 results. While revenue declined 7% year-over-year to $14.26 billion, beating estimates, adjusted net earnings came in at $0.13 per share. Intel has been contending with increasing competition in the server and PC space from AMD, which has impacted pricing.

Intel's AI bets

Intel is aiming to increase its presence in the AI space with its Gaudi 2 and upcoming Gaudi 3 accelerators, which are designed for AI workloads in data centers. The company is looking to compete on price, offering systems with eight Gaudi 2 accelerators for around $65,000 - about one-third the price of comparable platforms. Although Intel faces considerable challenges, given Nvidia's early lead and software ecosystem for AI development, the market could seek alternatives to Nvidia chips given their high pricing.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Intel's value that present opportunities for upside or downside to the current Trefis price estimate for Intel:

• Intel has seen its Data Center & AI Business post a weak performance over the last few years. The revenues stood at $16.9 billion in 2022 and declined to levels of about $12 billion in 2024 driven by mounting competition and slower demand for CPUs. That said, we expect sales to recover to levels of about $15.8 billion by 2031. However, Intel is facing mounting competition in the data center space, with rival AMD also gaining ground. If Intel's data center revenues remain flat at current levels of about $12 billion, then we could see a downside of about 10% from our current price estimate.

• The Data Center Group's EBITDA margins have declined from over 50% in 2022 to around 38% in 2024. While we forecast that margins will recover to about 47% by 2031, driven by new launches such as the Sierra Forest chip and Granite Rapids chip there could be a downside of about 20% if margins remain flat at current levels.

For additional details, select a driver above or select a division from the interactive Trefis split for Intel at the top of the page.

BUSINESS SUMMARY

Intel is best known for manufacturing and selling microprocessors, which serve as the central processing unit (CPU) in servers, desktops, and notebooks. As the most critical component driving a computer's power and performance, microprocessors are central to Intel's business. The company has also been ramping up investments in its foundry operations, aiming to produce chips for other semiconductor companies.

SOURCES OF VALUE

Microprocessors and chipsets used in servers, desktops, and notebooks are the major sources of revenue for the company.

KEY TRENDS

Intel's push into foundry business

Intel is also betting heavily on becoming a foundry player, producing chips for other semiconductor companies and taking on the likes of TSMC and Samsung Electronics. While the business has posted heavy losses in recent years, it could be on the cusp of a turnaround. The Intel 3 process node has been in mass production for several months now and is used to make the Xeon 6 data center chips. Processors made using the latest Intel 18A process are being sampled with laptop manufacturers. Intel has talked up the 18A process in the past, indicating that it could help the company reclaim “process leadership”.

Market Share Loss To AMD

AMD's Ryzen processors are in high demand of late. Ryzen CPUs have been able to deliver competitive power at a relatively lower cost. As such, AMD has gained some market share from Intel over the past few quarters. AMD is currently working on 7nm chips, which will roll out around the same time as Intel's 10 nm chips. AMD could gain further share in the coming quarters over Intel with its new chips, which it plans to launch for all major products - Ryzen, Radeon, and EPYC processors.

Beyond Ryzen, AMD's growth in the server market is more worrying for Intel. AMD's EPYC processors have been gaining a share amid strong performance at a lower price point.

On-Going Server Virtualization

Server virtualization is essentially server consolidation that enables running multiple applications on a single server instead of on multiple servers. Server virtualization is driving a shift in the mix towards higher-end servers, which require multi-core processor servers that tend to be more complex and more expensive than traditional single-core processors.

Increasing Importance of Smartphone and Tablet Chips

While PC shipments have declined drastically in the last few years, mobile shipments (particularly smartphones and tablets) have grown at a robust rate. Though the growth rate has slowed as developed markets near saturation, mobile shipments continue to expand at a fast pace.

PC Market Opening up to ARM (Advanced RISC Machine)

New Windows versions are ARM-compatible, which has opened up the market to ARM-based processor manufacturers. This market has traditionally been dominated by x86 processor architecture. This will challenge Intel's dominance, which could result in a loss of some market share in the future from increasing competition.