Intel Stock Just Had Its Best Day Since 1987. Why This Analyst Says It’s Time to Sell.

Intel secured a multibillion-dollar investment from peer chip maker Nvidia. (Dreamstime)

Key Points

About This Summary

• Intel stock had its best day in nearly four decades after Nvidia’s backing boosted blue-chip indexes.
• Nvidia will invest $5 billion in Intel to co-develop data centers and PC products.
• Analysts are divided; some see minimal improvement, while others see a turning point for Intel.

Intel stock just had its best day in nearly four decades after receiving backing from peer chip maker Nvidia, which helped drive markets to record highs.

While a multibillion-dollar investment does provide upside to Intel’s struggling businesses, some analysts see minimal improvement and recommend selling the stock.

“We downgrade Intel from Neutral to Sell due to Intel’s valuation and our belief that the stock is pricing in success in its leading-edge foundry business, which we believe has minimal chance to succeed,” said Citi analyst Christopher Danely in a research note dated Friday.

Intel stock was down 0.4% at $30.44 in premarket trading Friday, following a 23% jump in the previous trading session. It was the largest single-day percent increase since Oct. 29, 1987, according to Dow Jones Market Data.

The move was prompted by Nvidia on Thursday saying it would invest $5 billion in Intel at a purchase price of $23.28 a share as part of an agreement through which the tech companies will co-develop custom data centers and PC products.

The agreement could support Intel’s product business, which develops and sells semiconductors for both computers and data centers. However, it’s unlikely to do much to resolve underlying issues at its foundry business.

Intel shares have gained more than 50% since early August on the Nvidia deal and speculation that a foundry deal is next.

Danely disagrees. “Intel’s foundry is years behind TSMC,” he says. Even so, the analyst hiked the price target on the stock to $29 from $24.

Taiwan Semiconductor Manufacturing , or TSMC, is the leading manufacturer for advanced chips used for artificial intelligence and counts Nvidia as one of its most important customers.

However, others are more optimistic. The deal gives Intel new credibility and “plants seeds for Nvidia to eventually use Intel’s foundry as a second manufacturing source if TSMC capacity becomes strained or geopolitics intervene,” said Saxo strategist Charu Chanana.

Meantime, Benchmark analyst Cody Acree upgraded Intel shares to Buy from Hold following what he calls the “watershed agreement.”

“Thursday’s announcement with Nvidia marks a significant fundamental tipping point in Intel’s long-term competitive positioning, [and] a strong vote of confidence by the AI industry’s dominant leader in Intel’s development road map,” Acree wrote, setting a price target of $43.

“Although we expect near-term volatility following yesterday’s strong move, we recommend fundamental investors use any share price weakness as an opportunity to build long-term positions.”

Write to Elsa Ohlen at elsa.ohlen@barrons.com