INTC: Intel, Nvidia Partnership Buys Time, Not A Near-Term Turnaround

Sep 23 - Last week, Intel INTC staged a dramatic rally after Nvidia NVDA disclosed a $5 billion investment in its shares, a move that gave Wall Street a reason to revisit the chipmaker's turnaround story. Intel stock jumped more than 20% as the investment at $23.28 per share showed some confidence from Nvidia in Intel's long-term prospects.

The deal centers on next-generation custom data center and PC products that will integrate with Nvidia's NVLink technology. By leaning on Intel's x86 architecture, the two companies aim to push deeper into high-performance computing and AI workloads. While the announcement sparked enthusiasm, the financial impact may not materialize until later this decade.

Intel's fundamentals remain under pressure. Revenue has continued to slide, free cash flow has stayed negative for three years, and operating losses highlight execution risks. Intel has built up $110 billion in property and equipment, yet its return on invested capital lingers in the low single digits. Net debt is roughly 3x trailing EBITDA.

Management continues to pin hopes on the 18A node. Intel has reported 18A risk production, but full volume ramp timing remains uncertain and industry estimates place broader product launches and derivative variants over 20262028. Any early wins could help Intel win back contracts from Nvidia and reduce reliance on Taiwan Semiconductor TSM, but investors may need patience. The first joint products are not expected before late 2027.

Analysts warn that the rally might be excessive. Intel is trading at almost 25 times forward FY2027 earnings targets, and its price-to-book ratio has already increased by over 40 percent since the summer. Until Intel demonstrates that it has made definitive strides in execution, the stock becomes more of a long-term show me than a turn around story.