Breakingviews-Intel Forges Path To Probable Capital Incineration

Intel Corporation INTC recently announced that it had extended its collaboration with Amazon Web Services, Inc. (AWS), a wholly-owned subsidiary of Amazon.com AMZN. The collaboration involves co-investment by the companies in custom chip designs under a multi-year, multi-billion-dollar framework.

Under this expanded agreement, the semiconductor company will develop an AI fabric chip for AWS, leveraging its most advanced Intel 18A process node. Additionally, a custom Xeon 6 chip will be produced on Intel 3, strengthening its existing partnership in which Intel provides Xeon Scalable processors for AWS.

Intel continues its longstanding relationship with AWS, which began in 2006 with the launch of the latter's first Amazon EC2 instances featuring Intel's Xeon Scalable processors. The company is making solid progress in its Xeon processors, including the Intel Xeon 6 processor with Performance cores (P-cores), which is expected to begin shipping in the third quarter of 2024, along with the Intel Gaudi 3 AI accelerator.

Intel has also announced the launch of glass substrates for advanced packaging of chips. This industry-leading product is likely to be available for mass consumption in the second half of this decade as it aims to deliver 1 trillion transistors on a package by 2030.

Will INTC Stock Benefit From the Collaboration?

The expanded partnership between Intel and AWS underscores the commitment of both companies to advancing U.S.-based semiconductor manufacturing and fostering a vibrant AI ecosystem in Ohio. Intel remains dedicated to its New Albany manufacturing site, while AWS plans to invest $7.8 billion to expand its data center operations in Central Ohio, adding to the $10.3 billion previously invested in the state since 2015. This collaboration is expected to drive innovation across their shared ecosystem, bolster growth of both companies and contribute to a sustainable domestic AI supply chain.

Looking ahead, the companies intend to explore further opportunities for chip designs based on Intel 18A and future process nodes, including Intel 18AP and Intel 14A, which are expected to be produced at Intel’s Ohio facilities. This expansion may also include migrating existing Intel designs to these advanced platforms, continuing their tradition of innovation and collaboration.

All these advancements will likely generate incremental demands for Intel’s goods and services, leading to higher revenues. Improving financial performance is likely to propel the stock upward.

INTC’s Stock Price Performance

Shares of Intel have lost 45% over the past year against the industry’s growth of 125%.

INTC’s Zacks Rank and Key Picks

Intel currently carries a Zacks Rank #3 (Hold).

A couple of better-ranked stocks in the broader industry have been discussed below.

Ubiquiti Inc. UI carries a Zacks Rank #2 (Buy) at present. The company offers a comprehensive suite of networking products and solutions for service providers and enterprises. Its highly flexible global business model remains apt to adapt to the changing market dynamics to overcome challenges while maximizing growth. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Its excellent global business model, which is flexible and adaptable to evolving changes in markets, helps it to beat challenges and maximize growth. The company’s effective management of its strong global network of more than 100 distributors and master resellers improved its UI’s visibility for future demand and inventory management techniques. In the last reported quarter, Ubiquiti delivered an earnings surprise of 4.19%.

Airgain, Inc. AIRG currently carries a Zacks Rank #2. It has a long-term earnings growth expectation of 35%.

Based in San Diego, CA, Airgain provides antenna products as integrated wireless solutions. These devices are designed to address vital connectivity requirements during product development and throughout the entire lifecycle of other industries, such as automotive and consumer, in addition to various sectors within an enterprise.

Zacks Investment Research

The S&P 500 Index today is up by +0.62%, the Dow Jones Industrials Index is up by +0.44%, and the Nasdaq 100 Index is up by +0.83%.

Stocks today are moderately higher, with the S&P 500 climbing to a 2-month high, the Dow Jones Industrials posting a new record high, and the Nasdaq 100 rising to a 2-1/2 week high. Today's positive corporate and economic news has boosted optimism in the US economic outlook and is pushing stocks higher. Intel is up more than +6% after the chipmaker won new business from Amazon.com. Also, Microsoft is up more than +1% after it raised its quarterly dividend by 10% and announced a new $60 billion stock repurchase program. Stocks maintained moderate gains after strength in today’s US retail sales and manufacturing production reports supported the outlook for a soft landing.

Aug retail sales unexpectedly rose +0.1% m/m, stronger than expectations of a -0.2% m/m decline. However, Aug retail sales ex-autos rose only +0.1% m/m, slightly weaker than expectations of +0.2% m/m.

US Aug manufacturing production rose +0.9% m/m, stronger than expectations of +0.2% m/m and the largest increase in 6 months.

The US Sep NAHB housing market index rose +2 to 41, right on expectations.

The markets will look to the 2-day FOMC meeting that begins today to see whether policymakers will decide that a -25 bp cut in the fed funds target range would be adequate for a US economy that has shown signs of losing momentum or whether they will decide on a larger -50 bp rate cut instead. Post-meeting comments from Fed Chair Powell on Wednesday will also be scrutinized regarding the Fed’s future policy intentions.

The markets are discounting the chances at 100% for a -25 bp rate cut for the Tue/Wed FOMC meeting and at 64% for a -50 bp rate cut at that meeting.

Overseas stock markets today are mixed. The Euro Stoxx 50 climbed to a 1-1/2 week high and is up +0.79%. China's Shanghai Composite was closed for the Mid-Autumn Festival holiday. Japan's Nikkei Stock 225 closed down -1.03%.

Interest Rates

December 10-year T-notes (ZNZ24) today are down -6 ticks. The 10-year T-note yield is up +1.9 bp at 3.636%. Dec T-notes today gave up early gains and are slightly lower, and the 10-year T-note yield rebounded from a 15-month low of 3.595% and is moderately higher. The stronger-than-expected US retail sales and manufacturing production reports weighed on T-note prices. Also, strength in stocks today has reduced safe-haven demand for T-notes.

T-notes today initially moved higher on heightened speculation the Fed will cut interest rates by -50 bp at this week’s 2-day FOMC meeting. Swap markets showed the chances of a -50 bp rate cut rose to 64% today from 52% last Friday.

European government bond yields today are moving higher. The 10-year German bund yield is up +2.0 bp at 2.142%. The 10-year UK gilt yield rebounded from a 7-1/2 month low of 3.729% and is up +1.9 bp at 3.778%.

The German Sep ZEW survey expectations of economic growth index fell -15.6 to an 11-month low of 3.6, weaker than expectations of 17.0.

ECB Governing Council member Simkus said the likelihood of an October interest rate cut by the ECB is "very small."

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 32% for the October 17 meeting.

US Stock Movers

Intel is up more than +6% to lead gainers in the S&P 500, Dow Jones Industrials and Nasdaq 100 after the chipmaker landed Amazon.com’s AWS as a customer for its chip manufacturing business.

HP Enterprise is up more than +5% after Bank of America Global Research upgraded the stock to buy from neutral with a price target of $24.

Airbnb is up more than +4% after Uber won its fight against a state government claim in Australia that ruled its payments to drivers were not wages, which bolstered speculation other businesses with similar payment arrangements to Uber’s may benefit from its win in a long-standing payroll tax dispute.

AppLovin is up more than +5% after UBS upgraded the stock to buy from neutral with a price target of $145.

Insulet is up more than +3% after Piper Sandler raised its price target on the stock to $285 from $230.

GE Vernova is up more than +3% after Bank of America Global Research upgraded the stock to buy from neutral with a price target of $300.

Dell Technologies is up more than +1% after Mizuho Securities initiated coverage on the stock with a recommendation of outperform and a price target of $135.

Microsoft is up more than +1% after it raised its quarterly dividend by 10% and announced a new $60 billion stock repurchase program.

Accenture Plc is down more than -4% to lead losers in the S&P 500 after Bloomberg News reported the company plans to push back the bulk of its staff promotions by six months as a weak outlook is curbing IT spending.

Atlassian is down more than -2% to lead losers in the Nasdaq 100 on signs of insider selling after an SEC filing showed CEO Cannon-Brookes sold $1.31 million shares last Friday.

Defense companies are under pressure today on a Bloomberg report that said some of Ukraine’s allies are contemplating how to negotiate a cease-fire between Russia and Ukraine. As a result, L3Harris Technologies , Lockheed Martin , Northrop Grumman , General Dynamics , and RTX Corp are down more than -1%.

S&P Global Inc is down more than -1% after the stock was removed from Bank of America Global Research’s US number 1 list.

Acushnet Holdings is down more than -2% after Jeffries downgraded the stock to hold from buy.

Earnings Reports (9/17/2024)

Ferguson Enterprises Inc (FERG).

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policyhere.

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