Weak Demand and Competitive Pressure Posing Lethal Combination for Intel; Cutting FVE to $35

Intel’s fourth-quarter results were challenged by weak PC and server demand, competitive pressures from a resurgent AMD, and lingering execution issues culminating in market share loss and margin compression. While we remain positive on Intel’s IDM 2.0 strategy to fix its chipmaking prowess, we believe the firm’s financial results will be under duress until 2024 at the earliest. We lower our fair value estimate to $35 per share from $45 as we incorporate lower expectations for 2023. Shares fell 10% during after-hours as we suspect the market is skeptical Intel will be able to rectify its manufacturing issues. Although shares of narrow-moat Intel are modestly undervalued relative to our updated fair value, we believe narrow-moat AMD ($115 fair value estimate) looks more attractive at current levels given our expectations for strong share gains in the data center CPU market despite tepid macroeconomic conditions.