In a notable shift in market sentiment, Citi analyst Christopher Danely has downgraded Intel (INTC) shares from Hold to Sell following a significant rally in the stock. This decision comes on the heels of news that the chipmaker secured a partnership with artificial intelligence giant Nvidia (NVDA), which included a substantial $5 billion investment from Nvidia into Intel.
The partnership stipulates that Nvidia will utilize Intel’s central processing units (CPUs) in its AI server systems, while Intel plans to integrate Nvidia’s advanced AI technology into its CPUs for personal computers. However, Danely expressed skepticism about the implications of this collaboration for Intel’s market competitiveness. He noted that merely incorporating Nvidia’s graphical processing units (GPUs) into Intel’s existing CPU framework may not enhance their performance adequately in the highly competitive PC arena.
Danely emphasized that the core performance of a personal computer is primarily driven by the CPU itself rather than supplementary graphics components. His analysis suggests that despite the promising nature of the partnership, it may not significantly improve Intel’s standing against rivals in the PC market.
Furthermore, Danely questioned the potential financial impact of Intel’s agreement to supply CPUs for Nvidia’s AI server systems, estimating the market opportunity to be between $1 billion and $2 billion. This contrasts sharply with Nvidia CEO Jensen Huang’s optimistic projection of a $30 billion market opportunity in the same sector.
The downgrade reflects Danely’s belief that Intel’s stock has been buoyed by expectations surrounding its leading-edge foundry business, which he perceives to have minimal chances of successful growth. He pointed out that the recent announcement of the partnership did not address Intel’s struggling contract manufacturing business—the foundry segment—which has been linked to ongoing losses for the company amid significant layoffs and a pause in factory expansion plans.
Following the downgrade, Intel shares experienced a slight decline in premarket trading, underlining the market’s cautious outlook on the company’s potential to capitalize on its latest strategic partnership.
