Intel Corporation's (INTC.US) performance recovery receives praise from major banks, but high valuation and challenges in contract manufacturing remain major concerns.

Wall Street analysts stated that Intel Corporation's latest quarterly performance and guidance indicate that its transformation efforts are starting to pay off, but this semiconductor giant still has a long way to go. As of the time of writing, the stock has risen 6% in pre-market trading, and its competitors AMD (AMD.US) and NVIDIA Corporation (NVDA.US) have also seen increases in their stock prices. Jefferies Financial Group Inc. analyst Blayne Curtis wrote in a report to clients, "Excluding various adjustments, considering accelerated growth in server demand and the early stages of the PC refresh cycle, Intel Corporation's performance and guidance are slightly better than expected. The foundry business still faces challenges, but at least the 18A process technology is now operational, and we look forward to seeing the Panther Lake series products at the Consumer Electronics Show (CES). Overall, the performance this quarter has been solid, but more so benefiting from a strong recovery in the end market." Curtis maintains a "Neutral" rating on Intel Corporation, but has raised the target price from $35 to $40. Analyst Louis Gerard stated that Intel Corporation's performance this quarter has been impressive, laying a solid foundation for its future development. Gerard said, "I am particularly pleased with the company's Client Computing Group, which grew by about 5% year-over-year and continues to be the core growth engine for the company - the profits from this business can support Intel Corporation's other high-growth businesses." Morgan Stanley analyst Joseph Moore pointed out that the better-than-expected performance of Intel Corporation in the third quarter is partly due to the conservative strategy led by its CEO Lip Bu-Tan. However, he added that he was "surprised" by the situation of "supply shortages in the data center market with minimal year-over-year growth." Moore wrote, "Throughout the quarter, we have been talking about a fact - whether it is Intel Corporation or AMD, their server central processing units (CPUs) have been basically fully allocated. We have mostly attributed this phenomenon to demand-side factors. However, looking at the performance of the Intel Corporation Data Center and Artificial Intelligence department, the revenue of this department grew by mid-single digits quarter-over-quarter, slightly up year-over-year, and indicates that due to supply shortages, revenue growth in the coming quarters will be below seasonal levels - this seems to indicate that Intel Corporation is purely lacking in production capacity. Despite some reasons being related to product lineup restructuring and other challenges, considering that Intel Corporation has spent over $20 billion in capital expenditures in the past 12 months, we originally expected the company to be able to support double-digit growth." Despite the optimistic market sentiment, Moore still maintains an "Equal-Weight" rating on Intel Corporation, and states that even though the stock price has risen in recent weeks, he does not intend to change his views at the moment. Moore added, "If the increase in stock price is driven by the excitement of the foundry business or political optimism related to GEO Group Inc, and we believe that the benefits of the process technology will be first reflected in the microprocessor product portfolio, then the excitement of the foundry business or political optimism related to GEO Group Inc may subside again - this is the current risk. We are not predicting that this will happen, but we maintain an 'Equal-Weight' rating, as there may be periodic positive signals in the future. We may of course see Intel Corporation reach agreements with key customers for foundry services (even though these agreements are symbolic commitments driven by the government), events like these may continue to be positive catalysts for stock price increases. However, we remain skeptical about whether the foundry business will bring positive cash flow returns." Bank of America Corp analyst Vivek Arya stated that Intel Corporation's performance and guidance have been strong, and this trend also sends positive signals to AMD - especially that demand may continue to exceed supply until 2026. However, Arya pointed out that he does not expect a "substantial improvement" in Intel Corporation's foundry business, and the lack of AI accelerator is a major disadvantage for the company. "We believe that the stock's current 2027 fiscal year (CY27) P/E ratio exceeds 50 times, the valuation is already high, reflecting the market's speculative expectations for Intel Corporation to 'regain CPU market share' and 'make significant breakthroughs in the foundry business'," Arya wrote. "In other words, if Intel Corporation's stock price P/E ratio can match the 22 times P/E ratio of the Philadelphia Semiconductor Index (SOX) for the 2027 fiscal year, the company's pro forma EPS needs to reach $1.60-1.80, which is more than double our current forecast."