Intel (INTC) shares rose more than 5% on Tuesday as investment firm KeyBanc upgraded the stock to overweight from industry weight, citing the chipmaker’s progress in its manufacturing operations and strong demand for its chips in artificial intelligence data centers.
Analyst John Vinh said in a note to clients on Tuesday that demand from big tech companies for AI-enabled chips and servers is leading to increased sales of Intel CPUs (central processing units) or more traditional computer chips used with AI chips, such as Nvidia (NVDA) GPUs, to train and run AI models. Vinh said his supply chain checks show Intel is “almost sold out” of data center server CPUs this year and may raise the price of the chips.
Vinh also cited “significant progress” in Intel’s manufacturing operations.
Intel has been trying to revive its manufacturing arm, Intel Foundry Services (IFS), even as its chips have been losing ground to AMD (AMD) and Arm (ARM). The company has been caught in a vicious cycle: Manufacturing mistakes hurt the competitiveness of its chips, while weak chip sales led to underutilization of its factories, which only made the manufacturing transition more difficult. Early reported testing of Intel’s latest manufacturing process, 18A, by Nvidia and Broadcom (AVGO) failed to generate major deals for Intel.
But the arrival of a new CEO, investments from the U.S. government and Nvidia, and the successful rollout so far of 18A-made PC chips have bolstered investor confidence in Intel’s ability to turn things around.
Vinh said his supply chain research in Asia revealed that Intel has signed up Apple as a customer to use its next-generation manufacturing 18A-P process to produce low-end PC chips for its Macs and iPads, which will be a major boost for IFS. On the semiconductor side, Intel’s recently launched 18A process node represents its latest generation of chip manufacturing technology, and 18A-P is the upcoming advanced version of this node.
Analyst Ming-Chi Kuo first predicted a potential Apple deal in late November, sending Intel shares soaring. Vinh called the rumored collaboration “the first big whale design win” for Intel.
The KeyBanc analyst also said he believes the two technology companies are discussing whether Apple will use Intel’s upcoming 14A process to produce low-end chips for iPhones in 2029.
Intel and Apple did not immediately respond to Yahoo Finance’s requests for comment on a possible deal.
Vinh, meanwhile, said 18A’s improving yields (the percentage of chips a manufacturer produces from silicon wafers that work properly) “are enough to make us believe it can surpass Samsung and become the second-largest foundry supplier in the industry.” There are only three big players in the chipmaking industry: Taiwan’s leading Taiwan Semiconductor Manufacturing Co (TSM), South Korea’s Samsung (005930.KS) and U.S. Intel.
