Intel is the only alternative to TSMC says Northland, sees 100% upside potential

Analysts at Northland Capital Markets slashed their Intel (NASDAQ:INTC) estimates due to recent export restriction targeting Huawei, server CPU share loss to its peer AMD (NASDAQ:AMD), and expectations that PC demand slow down in the second half of 2024 (2H:24)

“A weaker consumer globally and higher DRAM prices contribute to our expectation of weaker demand in 2H:24,” analysts noted.

Still, the investment banking firm reiterated an Outperform rating on Intel stock, based on its belief that the chipmaker “will ultimately be the only leadingedge logic foundry alternative to TSMC.”

Northland’s price target on INTC shares currently sits at $68, implying nearly 100% upside potential from the last closing price.

Intel announced in May that it expects revenue to fall below the midpoint of its Q2 guidance of $12.5 billion to $13.5 billion due to the Department of Commerce's decision to revoke its export licenses to Huawei for laptops.

Northland analysts estimate that Huawei, a $400 million per year customer, likely impacted Q2 revenue by $50 million to $75 million. As such, they have adjusted their Q2 estimates to $0.10 EPS on $12.8 billion in revenue, down from their previous estimate of $0.10 on $13 billion.

For 2024, the analysts have also lowered their estimates to $0.90 EPS on $54.9 billion, down from $1.05 on $56.1 billion.

"INTC continues to lose server CPU share to AMD, and DC/AI revenue is now modeled to be $7.4 billion, down from $8.5 billion in 2H:24. PC demand is not seeing a material Y/Y increase. We are now modeling INTC's client revenue to be down Y/Y in 2H."

The analysts have also reduced their client PC revenue assumption for the second half of the year to $15.6 billion from $16 billion. Moreover, they anticipate that the mix shift and lower revenue will be a headwind to gross margins (GM), trimming non-GAAP GM to 45.2%, down from 45.6% for fiscal 2024.