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The Ratings Game: Intel is on a ‘long and expensive’ road but stock may not ‘meaningfully underperform further,’ analyst says

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Intel Corp. is on a “long and expensive” path as it tries to recapture its former glory, but its stock might not have much more downside, according to an analyst.

Raymond James analyst Chris Caso upgraded Intel’s stock
INTC,
+1.30%

to market perform from underperform Wednesday, ending the bearish call he made last April. While the semiconductor company expects to invest heavily in capital expenditures over the next few years, Caso notes that its stock has already reacted to the free-cash-flow commentary that Intel’s management team gave during an investor-day presentation held last week.

Shares are up 0.9% in Wednesday morning trading, though they’re down 13.5% over the past month as the Dow Jones Industrial Average
DJIA,
-0.17%

has dropped 2.2%.

Caso pointed out that Intel expects no free-cash flow over the next three years as it invests in process technology, and he sees a tough backdrop for the company and the broader chip sector during that time.

“The path to that goal is very long and expensive, and the outcome remains uncertain at best,” he wrote. “In the meantime, investing now for a potential 2025 recovery likely means investing through an eventual downturn, which remains a big ask for investors.”

The prospect of a chip-sector correction could make it “more difficult for [Intel] to return to positive free-cash flow in its stated horizon,” he continued. Additionally, he disagrees with the bull case that Intel will be able to claw back at Advance Micro Devices Inc.’s
AMD,
-1.33%

share gains, calling AMD’s market share “unsustainably low.”

Read: AMD stock gets a long-awaited upgrade as Intel’s stumbles mean it’s now ‘open season’ in servers

Still, he sees Intel’s stock as fairly valued, noting that it’s come down about 30% since his downgrade in early 2021, whereas the PHLX Semiconductor Index
SOX,
+0.06%

gained 4% over that time.

Given that stock performance and the “reset” on free-cash flow, “we’re not confident that the stock would meaningfully underperform further, particularly in an industry downturn scenario,” he wrote.

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