Wedbush said Intel CEO Pat Gelsinger's plan to reinvest in production is "ideal" but will likely weigh on earnings and cash flow in coming years.
Nathan Frandino/Reuters
Intel's plan to reinvest billions of dollars into chip production may weigh on the company's stock price in the near term, according to Wedbush analyst Matt Bryson.
On Tuesday evening Intel CEO Pat Gelsinger laid out "IDM 2.0," his vision for Intel to invest in manufacturing. The plan involves spending $20 billion to build two new chip factories in Arizona, where Intel will manufacture its own chips and act as a "foundry," or manufacturing partner, for third party chip designers.
Bryson said that while Intel's course of action is largely ideal, it will be costly and time consuming and a drag on the stock. For example, Intel is building its first 7 nanometer chip, but it won't be shipped until 2023, later than the company previously suggested. The analyst has a 12 month price target of $53 for Intel, a roughly 15% drop from current levels.
Bryson also holds an "underperform" rating for Intel. Shares of the chipmaker opened up 4.8% Wednesday but then pared gains throughout the morning. The stock is currently hovering around $63, bringing Intel's year-to-date gains to nearly 27%.
"We believe that Pat Gelsinger is doing absolutely the right thing for Intel by reinvesting in the company, but that his actions will almost necessarily weigh on earnings and cash flow over the next 2-3 years," Bryson said. "This conclusion is perhaps best illustrated by Intel's guidance for $10B in cashflow in 2021, well below the $17.3B consensus despite a sales outlook of $72B, in-line with prior consensus at $72.65B. Really, our only question around INTC's strategy is how it will manage to act as both a customer and competitor with foundry partners."
