The tumble in Intel Corporation (NASDAQ:INTC) stock seemed to slow in the premarket hours on Friday, although investors continued to pile into Advanced Micro Devices Inc. (NASDAQ:AMD) stock in a knee-jerk reaction to the Meltdown and Spectre vulnerabilities, erasing more than $11 billion in value. Several analysts tried to do damage control for Intel stock, saying that the vulnerabilities will have no serious implications on it.
However, one expert confirmed investors’ worst fears for Intel on Friday, saying that AMD is the natural beneficiary of the design flaw discovered in Intel’s chips.
Intel stock is “expensive,” but investors making “mountains from molehills”: CS
Credit Suisse analyst John Pitzer said in a note to investors that he feels that the market was making “mountains from molehills” and described this week’s selloff as “an overreaction.” Despite that, he still feels that Intel stock is expensive, so he reiterated his Neutral rating and $42 price target.
Intel admitted to the design flaws discovered by researchers last year, but Pitzer noted that, contrary to what the market seemed to believe,” the flaws aren’t unique to Intel processors. Manufacturers are in the process of rolling out security patches to fix the flaws in Intel’s chips, so consumers are just beginning to find out whether there is any truth to the claims that these patches will dramatically slow down their devices.
Potential financial impacts from Meltdown and Spectre
Pitzer noted that average users will see a 5% or less degradation in performance, although certain users could see degradation of 30% or more. He also pointed out that it’s not clear whether this degradation will result in long-term shifts in market share or pricing changes, although he doubts that this will be the case. Intel said on the conference call about the vulnerabilities that it doesn’t expect them to cause a delay in any upcoming product releases.
Focusing on the near term, he said the “most tangible” risk is whether the fear, uncertainty and doubt caused by the security vulnerabilities results in server purchases being delayed while IT managers seek clarity on the problems. He added that his checks during the fourth quarter suggest the possibility of upsides to estimates for Intel. He added that consensus is looking for Intel to report 86 cents per share in earnings on $16.32 billion in sales.
Implications from the security patch will be minor
Macquarie analyst Srini Pajjuri has an Outperform rating and $51 price target on Intel stock, and he sees only “minor” implications for Intel’s financial status from the security updates being pushed out to patch Meltdown and Spectre.
He also pointed out that the vulnerabilities are not specific only to Intel processors, adding that Intel servers are “operating as specified” as fixes are pushed out via standard upgrade procedures. Intel said on its conference call that future chips that “are not yet committed to silicon” will have improved microarchitectures, he noted.
The chip maker doesn’t expect any material impact from the vulnerabilities, including in terms of acceptance of its products. It did take one-time charges on its Pentium and Cougar Point chipsets years ago due to similar issues, but Pajjuri doesn’t expect this to happen this time around. He feels that the worst-case scenario will be “minor inventory write-offs which could have small impact on gross margins.” Rather than losing share to AMD, he feels that Intel might even benefit from an accelerated replacement cycle, adding that although some PC users might switch, it is much more difficult to switch processors at the server level because software updates are required. He also feels that AMD’s EPYC server chips are better for different types of workloads.
Intel’s loss is AMD’s gain, some believe
Some opinions on Intel stock stands in stark contrast as a few analysts warned of potentially severe impacts from the vulnerabilities. Bears expect enterprises to diversify their chip security architecture when it comes to essential applications, which means that those using Intel servers could buy more AMD servers going forward. Some reports indicate that differences in architecture have shown AMD’s chips to be immune to the worse of the two vulnerabilities that were discovered.
Mizuho Securities analyst Vijay Rakesh expects AMD to benefit from the design flaws in Intel processors, noting that Intel has a 99% share of the server market, which presents a huge opportunity for AMD. High Tech Strategist editor Fred Hickey echoed a similar sentiment. He told CNBC that this is an inopportune time as AMD’s new chip line-up is a “significant challenger for the first time in many years.”
Intel stock looked more stable in premarket trading on Friday, even flipping into the green after two losing days. As of the time of this writing, Intel stock is up 0.16% at $44.50