Here’s why Intel is in a catch-22 situation: Loop Capital

Investing.com -- Loop Capital initiated coverage on Intel with a Hold rating and a $25 price target on Tuesday.

In a note to clients, the firm highlighted a fundamental dilemma that could limit upside for the chipmaker.

“The catch-22 situation for Intel Corp (NASDAQ: INTC) is obvious,” the analysts wrote.

The firm pointed out that for Intel’s products to remain competitive against rivals such as AMD (NASDAQ: AMD), NVIDIA (NASDAQ: NVDA) and Arm-based chips, they would need to leverage the most advanced manufacturing processes.

“TSMC’s advanced-node manufacturing is better,” Loop Capital said, adding that “TSMC is the obvious manufacturing partner for Intel Products’ future compute tiles.”

However, shifting Intel’s manufacturing reliance externally creates complications for its internal foundry business.

“If Intel Foundry cannot rely on the volume from Intel Products, the company as a whole will struggle to cover fixed costs,” the note said.

In Loop’s view, this dependency could become a drag: “The Foundry business may be a headwind for Intel Products.”

Complicating matters, they believe Intel has limited flexibility to reorganize the structure of the business.

Loop Capital noted there are “seemingly limited options to detach, or de-consolidate, Intel Foundry.” As long as that remains the case, the analysts see little reason to upgrade the stock.

“Should the Intel Corp story shift away from ‘Foundry 2.0’, or detaches Foundry from Intel Corp, we may become more constructive with our rating,” Loop Capital concluded.

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