Intel slips as HSBC downgrades on 'unsustainable' re-rating

[Intel headquarters in Santa Clara, California, USA]
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Intel (NASDAQ:INTC [https://seekingalpha.com/symbol/INTC]) shares slipped fractionally in premarket trading on Wednesday as HSBC downgraded the semiconductor company, citing an “unsustainable” re-rating in its shares.

“Intel has recently announced three deals, driving a substantial re-rating of the stock: SoftBank investing [https://seekingalpha.com/news/4500127-intel-completes-sale-of-stock-to-softbank] $2B; the U.S. administration [https://seekingalpha.com/news/4488523-intel-confirms-massive-11_1b-investment-by-us-government] investing $11.1B for a 9.9% equity stake; and Nvidia (NVDA [https://seekingalpha.com/symbol/NVDA]) investing [https://seekingalpha.com/news/4495994-nvidia-intel-sign-blockbuster-deal-to-co-develop-chips-nvidia-to-take-5b-stake-in-intel] $5B for a [roughly] 4% stake,” analyst Frank Lee wrote in a note to clients. “While the deals were at a discount to the market price, the stock is up 55% since the first deal announcement in August. We expect further deal announcements that could drive a short-term re-rating. However, we believe that Intel's own fab execution remains key to any sustainable turnaround. Hence, we believe that this re-rating is overdone as we downgrade our rating on Intel to Reduce, from Hold.”

Despite the downgrade, Lee raised his price target on Intel to $24 from $21.25.

Delving a bit deeper, Lee said the only deal that “matters” seems remote, as Taiwan Semiconductor (TSM [https://seekingalpha.com/symbol/TSM]) is not interested [https://seekingalpha.com/news/4499758-taiwan-semiconductor-dismisses-report-of-intel-partnership-talks] in doing a deal with Intel for its foundry operations.

“The foundry segment remains the biggest drag on financials with consistent execution failures,” Lee posited. “Intel has also raised doubts about the viability of its 14A node amidst a lack of external customers after scrapping 18A for external customers recently. Hence, a technology-sharing agreement with TSMC could revamp Intel's foundry business. However, we do not see it happening as TSM is investing [greater than] $100B in the U.S. with multiple greenfield tabs and pulling in production and construction in the U.S.”

MORE ON INTEL CORPORATION

* Intel: No Resolution To Foundry And AI Problems [https://seekingalpha.com/article/4828407-intel-no-resolution-to-foundry-and-ai-problems]
* Intel: From Rival To Partner, How The Chip Game Is Changing [https://seekingalpha.com/article/4827668-intel-stock-from-rival-to-partner-how-the-chip-game-is-changing]
* Intel: I Got This Wrong But Here's Why I'm Still Not Buying Yet [https://seekingalpha.com/article/4827663-intel-i-got-this-wrong-but-heres-why-im-still-not-buying-yet]
* Intel to unveil technical details of upcoming Panther Lake laptop chip on Thursday - report [https://seekingalpha.com/news/4502528-intel-to-unveil-technical-details-of-upcoming-panther-lake-laptop-chip-on-thursday---report]
* Global semiconductor sales surge 21.7% Y/Y in August [https://seekingalpha.com/news/4501950-global-semiconductor-sales-surge-217-yy-in-august]