Intel (INTC): Raising PT To $38, Back Half DCG Is Achievable - Nomura

Nomura Securities analyst, Romit Shah, thinks Intel's (NASDAQ: INTC) expectations for DataCenter acceleration in the second half of 16 are achievable and he's raising his PT to prove it. Intel’s expectations for strong datacenter performance in 2H16 (+22% 2H/1H) are perceived by the market as too optimistic. However, the analyst believes that research by the Nomura, US TMT team suggests that this forecast in fact could be achievable. Cloud capex spending in 1H of 2016 came in at 46% of full-year expectations, implying 12–15% capex growth in the second half of the year. Spending by Microsoft and Amazon is stronger than expected, Facebook and Google are in-line, and Apple is weaker.

In addition, Intel's Broadwell-E server refresh should drive stronger results. Intel’s new Broadwell-E server chip based on 14nm was designed specifically for hyperscale customers. The analyst believes that this chip finds a balance between performance and cost, allowing data centers to scale out quickly while keeping TCO down. A new server launch typically sees an ASP uplift as customers buy up the stack. At the same time, a strong unit ramp of 14nm server products should help increase DCG operating margins by 3–5 points.

No change to the Buy rating but the price target increases to $38.00 (from $35.00).

For an analyst ratings summary and ratings history on Intel click here. For more ratings news on Intel click here.

Shares of Intel closed at $34.85 yesterday.

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