Shares of Intel and GlobalFoundries went in opposite directions Thursday after analysts at Morgan Stanley downgraded the former and upgraded the latter.
Morgan Stanley analysts Joseph Moore and Ethan Puritz cut their rating on Intel (ticker: INTC) to Underweight from Equal-Weight and lowered their price target to $47 from $55. The analysts raised their GlobalFoundries (GFS) target to Overweight from Equal-weight and raised their target slightly to $72.50 from $70.
Intel stock fell 1.9% to close at $47.93 on Thursday while GlobalFoundries shares jumped 4.8% to $62.48.
While the analysts like Intel CEO Pat Gelsinger and believe the firm has the capability to turn around its core business in the long term, they think the stock will trade sideways in the meantime.
“While we would like to see Intel as a value stock, with optionality from a turnaround in the core business, the reality is that ramp of fixed costs create a more ‘all-or-nothing’ situation where the company is going to need to succeed in these new businesses—and still turn around their core business—or be looking at long term gross margin and cash flow degradation,” they wrote.
The analysts say they prefer GlobalFoundries over Intel, arguing that the former could help investors hedge against U.S. government support for domestic foundry investments and customers diversifying away from Asia.
“While INTC is betting big on its foundry business, and recently purchased a smaller foundry in Tower Semiconductor, GFS already has a strong and growing customer base based on proven know-how and manufacturing capability,” they add.
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