Analysts see Intel stock responding well to Foundry Connect event

Intel’s IFS, or Intel Foundry Service, Direct Connect flagship event is taking place on Wednesday, February 21, and while not an investor event, Morgan Stanley does expect important elements of the value proposition to be a highlight and believes the stock should respond well given recent underperformance. Meanwhile, BofA maintains a Neutral rating on Intel ahead of the event, which the firm sees as positive for near-term sentiment and where it expects the company to provide an update on its nascent foundry and process roadmap.

SHOW ME STORY: While the Intel “Foundry Connect” is not an investor event, Morgan Stanley does expect important elements of the value proposition to be a highlight. The firm believes the stock should respond well given recent underperformance, but says that turning process potential into product leadership remains a show-me story.

While Morgan Stanley remains on the sidelines, it does acknowledge that Intel could be set up for a rebound in the nearer term. The stock is down 9% year-to-date, versus the semiconductor group up a remarkable 20%, and compute comparables up even more. The Intel underperformance is largely because of first quarter earnings weakness that doesn’t impact the firm’s view on the stock at all, Morgan Stanley argues. Investor positioning is balanced, in the firm’s view, with much more optimism than 12 months ago.

Morgan Stanley also believes the Intel “foundry connect” event this week will drive some important progress reports for the story. To be clear, the company has been vocal that investors are not the focus of this event; it is designed to drive interest in the foundry business, both from semiconductor customers as well as governments. The “not for investors” is a clear signal to the firm that there won’t be any customer disclosures on multiple announced customers for 18A. Regardless, positive that are likely to come out at the event should include high confidence in process technology, beyond 5 nodes in four years, strong government endorsement suggesting further benefits from the CHIPS act, and the segment P&L for foundry starting in Q1 helping the sum-of-parts narrative, Morgan says.

POSITIVE FOR NEAR-TERM SENTIMENT: Also discussing the upcoming event, BofA said it maintained a Neutral rating on Intel’s stock and that it expected the IFS Direct Connect to feature prominent appearances from U.S. Dept of Commerce, Microsoft (MSFT), Broadcom (AVGO), Arm (ARM), Mediatek, OpenAI, Synopsys (SNPS), Cadence (CDNS) and Ansys (ANSS). While unannounced, BofA would not be surprised to see a statement of support from Nvidia (NVDA) also as a potential customer of Intel’s packaging and 18A offerings. Overall, the IFS event could be a positive near-term stock catalyst especially if we get more proof-points of the company’s 18A process customer engagements, and if there are any news around U.S. Chips Act, Foundry success also accrues to Intel’s sum-of-parts valuation as an incremental value generator, BofA argues.

With that said, the firm believes IFS will likely remain sub-scale for some time. Thus far Intel has secured a total of 5 advanced packaging design wins and four Intel 18A customers, with a lifetime deal value of $10B-plus and the majority of revenue starting in 2025. This includes a “significant HPC customer” as well as a “meaningful prepay.” While Intel has not named or quantified every customer, BofA expects the 18A customer list to potentially consist of Nvidia, Broadcom, Ampere, and Faraday.

WHAT’S NOTABLE: The White House is in discussions to confer over $10B in subsidies to Intel in what would be the biggest award yet under a plan to bring chip manufacturing back to the U.S., Bloomberg‘s Mackenzie Hawkins, Sridhar Natarajan, and Ian King reported late last week, citing people familiar with the matter. The company’s award package is anticipated to include both loans and direct grants, the authors note.

PRICE ACTION: In Tuesday morning trading, shares of Intel have gained a little over 1% to $44.02.