Analyst: Intel (INTC. US) will eventually spin off, and the stock price is on track to soar by 50%

Intel (INTC. US) has placed most of its future bets on the success of its foundry business as it hopes to become a major player in TSMC's (TSM. US) and Samsung Electronics (SSNLF. US) and so on. While investors are increasingly optimistic about the company's progress in foundry, artificial intelligence, and other areas, it may have more upside, even if it may not come around at the same time.

Gus Richard, an analyst at Northland Capital Markets, gave Intel an "outperform" rating. He believes that the company, led by Intel CEO Pat gelsinger, could eventually be spun off into five separate companies — Mobileye, Altera, Foundry, IMS Nano Manufacturing and Products — with a total value of $68 per share for each segment. At this valuation, Intel's share price would be about 50% higher than it was at the close of trading on Friday. Richard writes: "These separate companies may be more valuable than the combined entity. In our opinion, the problem is the timing of each spin-off. ”

Mobileye和Altera

Richard believes that the residual value of Intel's stake in Mobileye could be as high as $30 billion. Intel divested a portion of Mobileye in October 2022. Its Programmable Solutions Group, formerly known as Altera, could be worth $12 billion, about five times its revenue over the past 12 months.

In October, Intel announced its intention to spin off the PSG business into a separate business, effective January 1 next year, to continue streamlining its larger business. PSG Group is responsible for Intel's advancement into high-performance communications and data center applications, and will be led by Sandra Rivera as an independent company. Currently, Rivera is the General Manager of Intel's Data Center and Artificial Intelligence Group.

Intel unveiled its artificial intelligence (AI) chip, Gaudi3, at the previous "AI Everywhere" event, hoping to gain a larger share of the booming AI hardware market. The Gaudi3 is scheduled to be officially launched next year, when it will be combined with other AI chips such as Nvidia (NVDA. US) H100 and AMD (AMD. US) upcoming MI300X – the competition. Intel says that the Gaudi3 will outperform Nvidia's H100.

Gelsinger hopes to revive the company's business with the AI boom, which Intel has been hit hard by past missteps and the broader PC market downturn. At the same time, its longtime rival AMD has grabbed some share of the PC and server market, and some of Intel's biggest customers are now designing their own chips. Gelsinger believes that AI represents the arrival of a new era and creates huge opportunities, and that more sufficient, powerful and cost-effective processing power is a key component of future economic growth, "the number of connected devices will increase by 4 times in the next 5 years and 15 times in the next 10 years".

According to the data, Intel Gaudi3 will use 5nm process, the bandwidth is 1.5 times that of the previous generation Gaudi2 (7nm process), BF16 power is 4 times that of it, and the network computing power is 2 times that of it. Gaudi3 is expected to be equipped with up to 128GB of HBM3e memory, which greatly improves AI learning Xi and training performance. Intel said that Gaudi3 is expected to capture a larger share of the market in 2024 with its leading AI chip suite, due to its growing and proven performance advantages, as well as highly competitive TCO (total cost of ownership) and pricing advantages.

OEM business

The third entity will be an independent foundry, which Richard said could eventually become the world's second-largest foundry, behind TSMC. "Intel may be the only viable alternative for TSMC to lead the way, especially in high-performance applications such as AI integrated circuits, CPUs, GPUs, and FPGAs," Richard wrote. ”

Previously, Dutch lithography machine giant ASML (ASML. US) said it has begun shipping the core components of its first latest chip-making machine to a chip factory owned by U.S. chipmaker Intel. According to media reports, unnamed people familiar with the matter revealed that the core components of the state-of-the-art system, known as the high-NA extreme ultraviolet (EUV) lithography machine, have been shipped to Intel's D1X chip factory in Oregon, which means that Intel's ambition to fully shift to the field of chip foundry has ushered in the most powerful lithography technology.

This technology is of great significance to both tech giants, both of which are the most important leaders in the chip manufacturing industry. Gelsinger has promised that the chipmaker he leads will get the first of these new machines, demonstrating his commitment to leading Intel back to the global forefront of manufacturing technology. ASML, for its part, is launching this new technology to help chipmakers such as Intel and TSMC conquer chipmaking technologies at the 2nm and sub-nodes, as well as keep the entire chip-making industry reliant on its highest-end lithography equipment.

He estimates that the company's in-house manufacturing revenue this year is about $20 billion, so at five times the revenue — TSMC, GF (GFS. US) and UMC (UMC. US) is a similar multiple – the value of the foundry business could reach $100 billion.

Richard talked about Intel's 18A foundry process technology, which has already delivered wins for several customers, and 18A PDK 0.9, which he said is "a significant milestone in the development of Intel's business as a foundry." He also said that packaging is starting to become a differentiator, with Intel adding two packaging customers in the third quarter and six more in the pipeline.

IMS nanofabrication business

In addition, Intel has sold about 30 percent of its IMS nanomanufacturing business to two partners — Bain Capital and TSMC — at a valuation of about $4.3 billion.

Product business

Finally, Intel's product business seems to be improving, especially if the PC business rebounds in 2024 and Intel's share of both the PC and server markets can stabilize. "We expect Intel to regain its leading position in process technology by 2025, so the market share of servers and PCs should at least stabilize," Richard wrote. He noted that 2025 could be a "strong year" for PCs, in part due to the infusion of artificial intelligence.

Richard noted that Intel's product business, which excludes foundry, Mobileye and Altera, generated $49 billion in revenue this year. As an independent fabless company, it could be worth as much as $147 billion, about three times its revenue, not counting the $90 billion in real estate, factories and equipment on its balance sheet.