Shares of Intel (INTC) are up 60 cents, or 1.2%, at $50.60, despite a negative note this morning from Stifel Nicolaus’s Kevin Cassidy, who cuts the stock to Hold from Buy after concluding server chip sales are about to slow, and you should instead buy stock in Advanced Micro Devices (AMD), which he simultaneously upgrades to Buy from Hold.
Intel’s stock multiple on forward earnings has expanded from 11.7 times back in September to 14 times at present, he writes. That was based on the release of new “Xeon” server chips last...
Shares of Intel (INTC) are up 60 cents, or 1.2%, at $50.60, despite a negative note this morning from Stifel Nicolaus’s Kevin Cassidy, who cuts the stock to Hold from Buy after concluding server chip sales are about to slow, and you should instead buy stock in Advanced Micro Devices (AMD), which he simultaneously upgrades to Buy from Hold.
Intel’s stock multiple on forward earnings has expanded from 11.7 times back in September to 14 times at present, he writes. That was based on the release of new “Xeon” server chips last summer.
"We have been bullish on Intel for this upgrade cycle,” he writes of those Xeon server-chip sales. "We now believe the upgrade cycle could peak in 2H18 while longer term the company could face challenges from evolving data center architectures."
Cassidy offers little detail on the Xeon sales. Instead, he spends a bunch of time on what he sees as the larger risks to Intel — and advantages for AMD.
One is that server computing is turning more and more to “accelerators,” chips that are not microprocessors, and that are stealing away the work from Intel’s microprocessors:
In our view, accelerators are becoming increasingly important as Moore’s Law improvements for CPUs have slowed. In March, IDC increased its forecast for total accelerated server infrastructure revenue to grow at a CAGR of 31.6% from 2017 – 2022 compared to the previous forecast of a 21.9% CAGR from 2016 – 2021. In November’s Top500 List of Supercomputers, the total number of accelerated systems increased to 104 from 90 in June, a 15.5% increase in six months. In that time, the number of accelerated supercomputers that used Intel Xeon Phi decreased to 10 from 14 in June. We believe this could be a reflection of customers resistant to being too reliant on Intel products. As accelerators compete for emergent AI opportunities, we expect this could push customers to solutions including GPUs from Nvidia or AMD, FPGAs from Xilinx, or new architectures being developed by Cambricon or Graphcore and away from Intel’s Xeon Phi or FPGAs.
In addition, he’s concerned about Intel’s lagging roadmap in chip technology:
we believe Intel’s process technology advantage has degraded, which may require additional CapEx to accelerate technology advancements. In its last earnings conference call, Intel reported it had shipped its first low volume 10nm SKUs in 4Q17 after the company demonstrated a 10nm Cannonlake laptop at CES in January of 2017. Meanwhile, AMD plans to sample a 7nm GPU in 2018 and its CPU roadmap includes a 12nm Zen+ product to be released in 2018 followed by a 7nm Zen 2 chip that is expected to sample to specific market segment by the end of 2018. AMD plans to use both TSMC and GF for its 7nm process. Intel claims that its 10nm process is a generation ahead of its competitors’ 10nm process due to higher density, but we believe the longer timeline and the company’s transition away from its traditional “tick-tock” cadence for CPU generations reflect a more competitive environment.
In addition to lauding the virtues of AMD’s “Ryzen” chips for PCs and notebooks, Cassidy also criticizes those who may be negative on AMD because of its exposure to crypto-currency “mining.”
Noting the brouhaha about the new custom chip from Bitmain Technologies, Cassidy thinks actually AMD’s — and Nvidia’s (NVDA) — sales of graphics chips, or “GPUs” should do just fine in the face of this threat:
Bitmain announced it will release Antminer E3, an ASIC-based miner designed for Ethereum, with shipments expected to begin in July. We believe that pent-up demand, as reflected by 66.1% inflated retail costs for GPU cards, and the need to restock inventory channels due to limited supply are likely to continue to boost GPU shipments, despite the potential for softer crypto-currency demand. AMD estimates that crypto-currency based revenue accounted for a mid- single digit percentage of total FY2017 revenue. Meanwhile, the shares have sold off by ~20% since Bitmain's announcement.
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