Intel Stock Downgraded At HSBC, as Pivotal TSMC Deal Seen As ‘Unlikely’

Intel's stock (NASDAQ: INTC) has been on a tear over the past month, adding 51.84% on the period, as bullish sentiment has pushed INTC higher. There could be some headwinds on the horizon, with a contrarian call from HSBC, downgrading the stock citing concerns over the improbability of a transformative technology partnership with Taiwan Semiconductor Manufacturing Company (TSMC).

The downgrade arrives despite recent infusions of capital from SoftBank, the U.S. government, and NVIDIA, which have buoyed the share price.

While Intel shares have surged 83% YTD, accelerating since September on the aforementioned investment announcements, HSBC says this rally may prove unsustainable without fundamental improvements in the company’s internal fabrication capabilities. HSBC’s decision to lower its rating to ‘Reduce' underscores the belief that the market has overreacted to these developments. The analyst’s price target, a bump to $24 from $21.25, remains firmly below the latest close at $37.17.

Central to HSBC’s bearish outlook is the conviction that a technology deal with TSMC represents the linchpin for any genuine, long-term turnaround at Intel. Without access to TSMC's advanced manufacturing processes, Intel's ability to compete effectively in the high-performance computing and artificial intelligence sectors remains questionable. However, the prospect of such a deal appears increasingly remote.

The market’s sensitivity to the TSMC partnership narrative was evident earlier in the year when rumors of a potential collaboration were swiftly refuted by a TSMC board member. This denial triggered an immediate 6% drop in Intel’s stock price at the time.

Broader analyst sentiment toward Intel remains mixed. While HSBC had previously upgraded Intel to ‘Hold' in January, citing limited downside after a correction, the firm maintained a cautious stance due to lingering doubts about the execution of Intel's IDM 2.0 strategy. Concerns about Intel's demand for ASML's equipment, as reflected in Morgan Stanley's downgrade of ASML, further contribute to the overall apprehension surrounding Intel's future market position.

The series of investments from SoftBank, the U.S. government, and NVIDIA, while providing a short-term boost to Intel’s financial position, are viewed by some as insufficient to address the underlying challenges facing the company. SoftBank invested $2 billion in Intel, acquiring 86,956,522 shares at $23.00 each through a private placement. The U.S. administration invested $11.1 billion for a 9.9% equity stake, while NVIDIA invested $5 billion for approximately 4% ownership.

HSBC's call comes against the run of current sentiment, yet it is always prudent to take note of both the bull and bear sides of a stock in order to come to your own conclusions.