Intel shares have not done well over the past two quarters, mainly due to the company’s over-dependence on the declining PC market. Despite that, the chip maker was able to cheer investors with positive news on its annual Analyst Day. Now Nomura has upgraded the chip maker, citing improved Data Center spending.
DCG to bring more revenues
Nomura analyst Romit Shah raised Intel from Neutral to Buy, saying that the company’s Data Center business alone is valued at $31 to $34 per share. This suggests that Intel’s other businesses — the Internet Of Things (IoT) and Client Computing – are available at a great discount. The chip maker is presently trading at around $35.
“This suggests that at the current market valuation, investors get what we think could be seen as almost a free ‘call option’ on the client computing, Internet of Things and memory businesses,” Shah wrote.
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The analyst expects Intel’s DCG segment to post robust growth in 2016 owing to improved data center spending and continued strength in the cloud. The cloud segment now accounts for 33% of Intel’s data center business, up from 20% in 2013. Shah believes that increased revenues from the data center group could push Intel’s margins up.
All big tech firms, including Microsoft, Apple and Google parent Alphabet, are expected to increase their investments in data centers. From 6% in 2015, industry-wide internet capex is expected to rise to 18% in 2016, Shah believes.
Intel’s CY16 EPS estimate has been raised to $2.51 from $2.30, considering strong revenue growth in DCG, benefits from the acquisition of Altera and an extra week of revenues. Nomura also raised Intel’s 12-month target price from $33 to $42.
Intel a “survivor”
Even though the company missed third-quarter revenue estimates significantly, pushed out 10 million units in the second quarter and lowered its DCG guidance in the fourth quarter, still, its shares are down by less than 10% year to date. This indicates that the chip maker is a “survivor,” Shah said.
Previously, the chip maker revealed its intention to focus on its memory chip-making business with Micron Technology. Also Intel acquired Altera a — programmable chipmaker – to further diversify its offerings. On its Analyst Day, the chip maker raised its quarterly cash dividends and its outlook for 2016.
On Wednesday, Intel shares closed up 0.17% at $34.81. Year to date, the stock is down by over 4%, while in the last one month, it is up by over 4%.