Intel stock has been on a tear recently after striking deals with Nvidia, SoftBank, and the U.S. government. But one analyst thinks the rally is now overdone.
HSBC's Frank Lee downgraded the shares to Reduce, a Sell equivalent, from Hold in a note late Tuesday -- he increased his price target to $24 from $21.25. The shares slipped 0.4% to $37.03 ahead of the market open Wednesday.
Lee noted the stock has surged more than 50% since the first of those deals was announced in August, adding that the shares' recent rerating was "unsustainable." The analyst said a technology sharing deal with its rival Taiwan Semiconductor Manufacturing (TSMC) was "the only one that matters," but "seems remote." He said such an agreement could revamp Intel's foundry business.
Intel's shares have had a resurgence in recent months following a flurry of high-profile investments in the company. Last month, Nvidia announced it would invest $5 billion in Intel stock at a purchase price of $23.28 as part of an agreement in which the tech companies will co-develop custom data centers and PC products. That came just weeks after the U.S. government bought a 10% stake in the company for around $8.9 billion.
The first of Intel's three recent deals came in August when Japanese technology conglomerate SoftBank announced a $2 billion investment in the chip maker
HSBC's Lee also said the opportunity from the Nvidia deal is "hard to quantify amid [a] lack of visibility." Ultimately, he said Intel's own execution around its fabrication plants "remains key to any sustainable turnaround."
The stock has climbed 85% this year through Tuesday's close and is up 57% since the SoftBank investment was announced. Wall Street appears to agree the stock rally may have gone too far. Analysts have an average price target of $26.70 on Intel shares, implying 28% downside to the current price, according to FactSet data. The majority, 76%, have a Hold rating.
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