Intel Delivers a Monster Quarter; Shares Attractive

In the wake of the departure of its CEO,

Amid a PC market in secular decline and a semiconductor market fraught with competition, Intel is on track to record its first year of double-digit revenue growth since 2011. We applaud the firm's efforts to transform from a PC-centric behemoth into a data-centric chip titan with a broad product portfolio for data processing, storage, and transfer.

Shares were down 5% during after-hours trading, as we postulate the market extended its enthusiasm for AMD's recent positive earnings performance by discounting Intel. Meanwhile, we surmise Intel's delayed 10-nanometer product ramp (with pertinent systems not reaching shelves until the second half of 2019) also contributed to the after-hours weakness. Nevertheless, between the firm's short-term financial outperformance and long-term scattershot approach to address challenges in connectivity (5G), computing (artificial intelligence, or AI, and cloud), and memory (3D NAND and 3D XPoint), we remain positive on wide-moat Intel's prospects.

We are raising our fair value estimate to $65 per share from $62 per share as we incorporate the updated 2018 guidance. With the recent sell-off, we think Intel offers a compelling investment opportunity.

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