Why Jefferies Sees Better Options Than Intel

Intel Corp. (NASDAQ: INTC) is starting off the week under fire from analysts, and it’s not a good look for the tech giant. According to one analyst, it’s not necessarily what’s under the hood at Intel that is the problem, but really the competition that it faces. Even then, Intel stands to lose most out of any of the other players in the industry.

In this report, it really is a “who’s who” of companies that are looking to nibble away at Intel’s data center segment and shift into the Internet of Things and artificial intelligence.

As a result, Jefferies downgraded Intel to an Underperform rating from Hold and lowered its price target to $29 from $38, which compares with a $33.88 prior closing price.

The firm believes Intel’s Xeon/Xeon PHI platform is disadvantaged when compared to NVIDIA Corp. (NASDAQ: NVDA) in emerging parallel workloads like deep neural networking. Jefferies’ checks indicate Intel’s Xeon does not have the mixed precision support, nor tensor cores (necessary for efficient matrix multiplication). While Intel has upgraded its Math Kernel Library (MKL) with deep neural network capabilities (MKL-DNN), the takeaway is that Intel is still in early phases of optimizing it.

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NVIDIA’s data center business has grown 200% year over year over the past three quarters and is now 10% the size of Intel’s Data Center Group (DCG). At the same time, Intel’s server business has decelerated to 6% in the first quarter from double-digit three-year and five-year compound annual growth rates.

Jefferies is modelling DCG revenues to decelerate to 5% in 2018 from 7% in 2017. Near term, the firm expects Intel to benefit from the official ramp of its Purley server platform.

The brokerage firm commented in its report:

Advanced Micro Devices, Inc. (NASDAQ: AMD) has reentered the x86 server market for the first time in years, and Microsoft’s announcement for Windows support on ARM is a watershed, making Cavium’s ARM-based ThunderX MPU a scalable alternative to Xeon in the datacenter. In FPGA, we think Xilinx’s SDAccel adds a capability that Intel’s Programmable Solutions Group (Altera) has yet to build. Finally, we think AMD’s Zen desktop MPUs chip away at Intel’s core solutions.

Here’s how Jefferies rates the other firms in the group:

• NVIDIA has a Buy rating with a $180 price target.
• Texas Instruments has a Buy rating with a $94 price target.
• Broadcom has a Buy rating with a $270 price target.
• AMD has a Buy rating with a $16 price target.

Shares of Intel were last seen trading down about 0.8% at $33.60, with a consensus analyst price target of $39.79 and a 52-week range of $33.23 to $38.45.

NVIDIA shares were trading up over 2.5% at $150.51. The stock has a 52-week range of $51.52 to $168.50 and a consensus price target of $133.89.

AMD was up 1% at $13.52, with a consensus price target of $12.82 and a 52-week range of $5.00 to $15.55.

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