Wedbush: Intel's bright earnings report may not drive up stock price
The second-quarter financial report will be released on July 23, but it faces a special problem. Wedbush Securities expects strong earnings numbers. However, the investment bank is not sure whether the strong performance will be enough to push the stock price upward. Wedbush analyst Matt Bryson said in a client research report that Intel's revenue and profit margins are expected to significantly exceed market expectations, and this trend is likely to continue in the third quarter. He maintains a neutral rating on Intel and a price target of $95. The target price is basically the same as Intel's current stock price before the release of the financial report, which means that even if the performance is expected to exceed expectations, Wedbush believes that the upside potential of the stock price is limited. Intel already set a high benchmark last quarter. According to Barchart data, the company's April financial report exceeded Wall Street expectations, with data center business revenue increasing 22% year-on-year. The stock price rose 23.6% the day after the financial report was released. Since then, investors have formed expectations: Intel's every financial report will bring eye-catching market trends, which has also raised the gaming threshold for the July 23 financial report. The trend is why he remains cautious. Last week, TSMC handed over record profits and raised its full-year performance guidance, but its stock price still fell; after a year-long surge, the sector's valuation was already at a high level, and investors chose to settle for safety. Bryson wrote: Even if the performance significantly exceeds expectations and sales return to the acceleration channel, it will be difficult to prevent the overall semiconductor sector from suffering a sell-off. Bryson said rising tensions and concerns about inflation caused by the Fed's subsequent policies have further exacerbated market uneasiness. The market is increasingly concerned about when hyperscale cloud vendors will realize returns on their data center investments, further exacerbating pressure on the sector. Even so, Bryson believes that compared to TSMC and NVIDIA, Intel is more vulnerable to market fluctuations - its valuation is much higher than the level of its historical center and industry peers. Bryson predicts that Intel's data center business sales will increase by 10% month-on-month and 40% year-on-year, partly driven by stronger product pricing. He mentioned in the research report that the average selling price of chips achieved double-digit growth this quarter. Pricing capabilities are crucial, indicating that Intel already has room to increase prices before full-scale mass production of new-generation chips ramps up. On the one hand, Intel uses mature processes to support the growth of its server chip business, while at the same time promoting mass production of advanced 18A processes and expanding PC chip production capacity. Bryson said that the mass production of the 18A process is progressing better than previously expected. PC chip business and profit margin trend are improving Bryson said that although overall PC sales fell short of expectations, PC chip prices remained strong. This trend is expected to continue into the third quarter, and Intel's revenue is more likely to exceed expectations. Benefiting from strong pricing levels, the company's profit margin will also be significantly higher than previous market expectations, and Bryson expects this trend to continue for several quarters. Data shows that Intel's stock price has rebounded from a 52-week low of $18.97 to about $95, making it one of the strongest rebounding stocks in the S&P 500 this year. Under the dramatic changes in the market, the logic of stock prices has long been different from a year ago; at that time, as long as the performance exceeded expectations, the stock price could follow the trend and rise. Today, market judgment standards have risen significantly, and Bryson's target price reflects this change. TipRanks data shows that options market pricing reflects that Intel’s stock price may fluctuate close to 15% before and after the earnings report. The average price target among Wall Street analysts is nearly $107, significantly higher than the $95 given by Bryson. The gap between the two shows that although he agrees that this quarter's performance is good, he is more conservative than the mainstream view of the market. Intel's new round of layoffs this year will bring about cost reductions and is expected to continue to support profit margins in the third quarter.