An unconfirmed pricing report and a higher analyst rating lift shares, while a demanding valuation raises the stakes.
Intel shares rose as much as 9.8% Tuesday, trading up more than 8% by midmorning, after a report from DigiTimes, relayed by The Motley Fool, indicated the company plans to raise chip prices by roughly 10%, its third such increase this year. If implemented, higher prices could support gross margins, although the benefit would depend on demand and sales volumes.
The rally got a second leg from Northland Securities analyst Gus Richard, who upgraded Intel to Outperform from Market Perform with a $120 price target, implying roughly 25% upside from Friday's close. Richard pointed to what he called material progress in Intel's foundry turnaround and to pricing power stemming from current shortages in CPU supply.
Valuation leaves little room for error
The upgrade comes with a caveat Richard himself raised: at current levels, Intel trades at roughly 68 times forward earnings and 51 times next year's projected earnings, a valuation that leaves little cushion if the foundry turnaround or the pricing strategy disappoints. The DigiTimes report underlying the price-increase story has not been confirmed beyond its citation in Motley Fool's coverage, and Intel has not issued its own statement confirming the specific magnitude of any price change.
Intel's move comes against the backdrop of an already eventful year for the company, which priced a $20 billion equity raise in August and has separately drawn a stake from Nvidia. The latest pricing report and analyst upgrade add to investors’ assessment of the company’s financial and competitive repositioning.