Morgan Stanley has reservations about Intel’s business strategy

Since Pat Gelsinger took over as CEO, Intel has undergone a drastic internal overhaul while changing its past business strategy. The IDM 2.0 strategy released by Intel last year pointed out three directions for future development. These are a globalized internal factory network for mass manufacturing, expanded adoption of third-party foundry capacity, and a world-class Intel Foundry Service (IFS).

Under the new business strategy, Intel has built a large-scale fab and increased related technology research and development investment, resulting in huge capital expenditures, hoping to catch up in the field of semiconductor manufacturing. In Morgan Stanley’s view, this approach is very aggressive, increasing the risk of business, and the final result is likely to be a big win or a total loss. In the new investment report, Morgan Stanley significantly lowered Intel’s target stock price by 14.5%, from $55 to $47, and the rating changed from “equal weight to underweight“.

“We like new CEO Pat Gelsinger and believe in the longer term turnaround capability in the core business, but even with that view, the next couple of years are likely to see the stock move sideways and we see more actionable opportunities elsewhere in our coverage,” the analysts wrote.

SeekingAlpha said that Morgan Stanley recognizes Pat Gelsinger’s ability and believes that it is possible to turn things around in the future, but this is unlikely to happen in the short term.

Morgan Stanley believes that Intel’s current business strategy requires years of investment to pay off, which will affect its cash flow in the next few years, and there are other attractive investment options in the market. Morgan Stanley expects Intel’s costs to rise by more than 40% over the next few years, with sales falling this year and only marginal single-digit growth through 2023.