Citi analyst Christopher Danely has made headlines by downgrading Intel shares from Hold to Sell, following a significant rally in the chipmaker’s stock. The surge came on the heels of an announcement regarding a strategic partnership with Nvidia, a leader in artificial intelligence technologies. Under this agreement, Nvidia will acquire a $5 billion stake in Intel, along with plans to utilize Intel’s central processing units (CPUs) in its AI server systems.
Despite the initial market enthusiasm, Danely holds a different perspective on the implications of this collaboration. He argues that while the partnership appears beneficial on the surface, it may not provide the competitive edge Intel needs in the personal computer sector. The integration of Nvidia’s GPU “chiplets” into Intel’s CPUs is unlikely to enhance performance, as Danely emphasizes that the chip itself is crucial in driving a computer’s capabilities.
Moreover, when it comes to Intel supplying CPUs for Nvidia’s AI server systems, Danely sees limited market potential, estimating it to be only around $1 billion to $2 billion. This sharply contrasts with Nvidia CEO Jensen Huang’s projection of a $30 billion opportunity in the same space, highlighting a significant divergence in market outlooks between the companies.
Danely’s downgrade reflects a broader concern regarding Intel’s leading-edge foundry business, which has been underperforming and has led to considerable losses for the company. He notes that the partnership announcement omits mention of this crucial segment, which has been a focal point of Intel’s recent struggles, including mass layoffs and the suspension of factory expansion plans.
Following the downgrade, Intel shares experienced a slight decline in premarket trading, further indicating the market’s reassessment of the company’s prospects amid shifting industry dynamics and the challenges it faces.
