Citi (C) analyst Chris Danely downgraded Intel (INTC) shares to Sell from Hold Friday following a rally in the stock Thursday on news of a partnership with Nvidia (NVDA). Danley believes the partnership isn’t as helpful to Intel as it seems.
In addition to Nvidia taking a $5 billion stake in Intel, the deal involves Nvidia using Intel’s CPUs — central processing units, or traditional computer chips that are the “brain” of a computer — in its AI server systems. Intel would use Nvidia’s AI tech in its CPUs for personal computers.
But Danely said his team of analysts “doubt this makes Intel CPUs more competitive” in the personal computer space.
This, he explained, is because integrating another company’s graphics — in this case, Nvidia’s GPU “chiplets” — wouldn’t make a CPU more competitive because that chip itself is the main performance driver for a personal computer.
He added that, when it comes to Intel’s deal to supply CPUs for Nvidia’s AI server systems for data centers, he sees the company’s market opportunity being “small,” at roughly $1 billion to $2 billion.
Meanwhile, Nvidia CEO Jensen Huang told journalists at a press conference Thursday that he sees that very same market opportunity being $30 billion.
Danely also said, “We downgrade Intel from Neutral to Sell given our belief the stock is pricing in success in its leading-edge foundry business, which we believe has minimal chance to succeed.”
Intel and Nvidia’s partnership critically failed to mention the former’s contract manufacturing (foundry) business, which has been driving losses at the company as it conducts mass layoffs and pauses factory plans.
Intel shares fell fractionally in premarket trading Friday.