Intel trades highest level since dot com bubble amid analyst caution on valuation

Investing.com -- Intel Corporation (NASDAQ: INTC) shares rose 0.57% on Thursday, despite Bank of America analysts expressing skepticism about the stock's recent rally and maintaining a cautious stance on its valuation.

Intel stock gained modestly as BofA analysts acknowledged improving opportunities in the server CPU market and earnings accretion from recent fabrication buy-outs, while questioning whether the company's approximately $110 billion market capitalization increase over the past three months is justified.

BofA raised its price objective to $48, based on 3.7x CY28E EV/S compared to 3.5x CY27E, as the firm looks toward further foundry opportunities. The new target sits toward the high end of Intel's 1.7x-4x historical range.

The analysts outlined a sum-of-parts valuation framework for Intel. They noted that any external manufacturing business for wafers or packaging should not be valued above the approximately 10x EV/S multiple of industry leader Taiwan Semiconductor Manufacturing Company. BofA models $3 billion and $6 billion in revenue for CY27 and CY28, respectively, from MediaTek TPU packaging, Apple M processors, and other ASICs.

"We like INTC's improving opportunity in server CPU, EPS accretion from recent fab buy-out and scarcity value of its manufacturing & packaging assets for external customers. However, the ~$110bn market cap increase over the last 3 months seems excessive to us," BofA analysts commented.

The firm also expressed skepticism about durable benefits from Tesla's Terafab partnership beyond intellectual property sharing and packaging, noting that Tesla is creating a rival fabrication facility and already maintains foundry relationships with Samsung and TSMC.

BofA suggested Intel's core products business could generate $2 to $2.50 in earnings but should be valued no higher than the approximately 16x CY28E price-to-earnings ratio of profitable fabless peers including Advanced Micro Devices, Broadcom, and Nvidia.