Chipmaker Intel Floats On Amazon, Google, Facebook Cloud Sales
No. 1 chipmaker Intel ’s ( INTC ) “winning lottery tickets” — Super 7 and Next 50 clients — will push continued double-digit sales for its Data Center Group, Jefferies analyst Mark Lipacis said Friday. But Intel’s “Cloud Day” event on Thursday didn’t lift Intel stock much on Friday; it closed up only a fraction, at 32.45. Intel stock is down 6% year to date, but it’s been on a three-week run since hitting a seven-month low of 28.22 on Feb. 11. On Thursday, at its Data Center Group (DCG) conference, Intel unveiled a new Xeon processor and a 3D Nand chip — the tech was developed with Micron Technology ( MU ) — and reiterated its commitment to help install “the next 10,000 clouds.” Lipacis wrote in a research report, “Intel’s new products and ongoing initiatives are making it easier to deploy clouds.” Easier cloud deployment should drive incremental demand for Intel’s high-margin microprocessors, he noted. Lipacis has a buy rating and 39 price target on Intel stock. Intel refers to its big DCG customers as the Super 7. They are Alibaba ( BABA ), Amazon.com ( AMZN ), Baidu ( BIDU ), Facebook ( FB ), Alphabet ( GOOGL ), Microsoft ( MSFT ) and Tencent ( TCEHY ). Intel’s Super 7 sales rose at a 30% compound annual growth rate between 2012 and 2015, RBC Capital analyst Amit Daryanani wrote in a research report. Its Next 50 customer base grew at 40% compound annual growth rate (CAGR) over that span. Daryanani figures that the Super 7 comprised 75% of cloud sales in 2015, but Lipacis says that the Next 50 are growing twice as fast. Although PCs continue to represent 60% of Intel’s total sales, the chipmaker is making a smart grab for the cloud market, Daryanani wrote. “Intel is positioning itself at the center of cloud development,” Daryanani wrote, hiking his price target on Intel stock to 33 from 31 and maintaining his sector perform rating. DCG sales are slated for 20% growth through 2019, with a third stemming from the cloud business, Daryanani said. Assuming that DCG is 30% of sales in 2016, cloud revenue alone will account for 10% of Intel’s total revenue. On Thursday, Intel announced its builders program to accelerate adoption of network functions virtualization, and highlighted its nine-month-old Cloud for All initiative. Cloud for All aims to make it easier to deploy agile and scalable cloud platforms. It could be “a potentially positive driver for enterprise server spending (about 35% of DCG revenue),” Credit Suisse analyst John Pitzer wrote in a report. Pitzer rates Intel stock an outperform and has a 40 price target.