Investing.com -- Morgan Stanley raised its price target on Intel to $56 from $41, citing stronger server demand and higher expected earnings, but said memory chipmakers Micron and SanDisk offer better risk-reward for investors looking to play the AI-driven surge in processor demand.

Analysts led by Joseph Moore lifted their 2027 earnings estimate for Intel from $0.97 to $1.34 per share, driven largely by higher server pricing and volumes. The bank now sits roughly 20% above Wall Street consensus on Intel’s earnings for both 2026 and 2027.

Morgan Stanley now projects around 30% year-over-year revenue growth for Intel’s data center segment in 2026, reaching $21.8 billion.

"It has been clear for a while that CPUs are becoming a more substantive part of the AI surge, as real time agents built by AI are running on CPU," the analysts wrote. Morgan Stanley’s global team has settled on a longer-term CPU growth rate of around 30-40%, well above historic norms but still below expectations for GPUs.

Despite the raised target, Morgan Stanley kept its Equal-weight rating on Intel, pointing to a weak server product roadmap as a key concern. The analysts noted that comments around shortcomings in Intel’s next-generation Diamond Rapids server chip "have come directly from the CEO," while rival AMD’s Venice processor represents "a clear major step forward."

The analysts also said they "remain skeptical" on Intel’s foundry ambitions, seeing a positive DCF outcome for that business as "remote."

On AMD, Morgan Stanley also holds an Equal-weight rating with a $255 price target. While the analysts believe that AMD is "likely a bigger beneficiary of server strength given product leadership," they flagged that a bet on AMD’s CPU momentum failed to pay off last quarter when the stock sold off sharply despite solid server results.

AMD’s stock is more likely to be driven by GPU performance than CPU gains, they added.

In this backdrop, Morgan Stanley named Micron and SanDisk as its preferred way to position for CPU strength, both rated Overweight. "Our favorite way to play CPU strength is through memory stocks," the analysts said.

The team pointed to tight data center supply conditions it expects to persist through at least 2027, along with emerging long-term supply agreements with hyperscalers as key catalysts.

"To summarize, we are very much in agreement that agentic demand will drive higher CPU growth, but simply see memory as providing the best risk reward," the analysts said.