Analyst: Intel is expected to eventually split, with the stock price expected to soar 50%.

Intel has placed most of its future bets on the success of its foundry business, hoping to become a viable competitor to companies like TSMC and Samsung Electronics. While investors are increasingly optimistic about the company's progress in foundry, artificial intelligence, and other fields, there may still be more upside potential, even if it may not come at the same time.

Gus Richard, an analyst at Northland Capital Markets, gave Intel an "outperform" rating. He believes that the company, led by CEO Pat Gelsinger, may eventually be split into five independent companies - Mobileye, Altera, foundry, IMS Nano Manufacturing, and product companies - with a total value of $68 per share. Based on this valuation, Intel's stock price could be about 50% higher than last Friday's closing price. Richard wrote, "These separate companies may be more valuable than the combined entity. The question, in our view, is the timing of each spin-off."

Mobileye and Altera

Richard believes that the remaining value of Intel's stake in Mobileye could be as high as $30 billion. Intel partially divested its stake in Mobileye in October 2022. The value of its Programmable Solutions Group (formerly known as Altera) could reach $12 billion, about 5 times the revenue of the past 12 months.

In October, Intel announced plans to separate its PSG business into a standalone business, effective January 1st next year, to further streamline its larger business. The PSG group is responsible for Intel's advancement in high-performance communications and data center applications, and after becoming an independent company, the group will be led by Sandra Rivera. Currently, Rivera is the General Manager of Intel's Data Center and AI Group.

At the "AI Everywhere" event held earlier, Intel unveiled its AI chip Gaudi3, hoping to gain a larger share in the booming AI hardware market. Gaudi3 is scheduled to be officially launched next year and will compete with other AI chips such as Nvidia's H100 and AMD's upcoming MI300X. Intel stated that Gaudi3's performance will surpass Nvidia's H100.

Gelsinger hopes to revitalize the company's business with the AI boom. Intel has suffered setbacks due to past mistakes and the broader decline in the personal computer market. Meanwhile, its long-time competitor AMD has gained a portion of the market share in the personal computer and server markets, and some of Intel's largest customers are now starting to design their own chips. Gelsinger believes that AI represents the arrival of a new era, creating tremendous opportunities, and that more abundant, powerful, and cost-effective processing capabilities are key components of future economic growth. "In the next 5 years, the number of connected devices will increase fourfold, and in the next 10 years, it will increase fifteenfold."

According to the data, Intel Gaudi3 will adopt the 5nm process, with a bandwidth 1.5 times that of the previous generation Gaudi2 (7nm process), BF16 power 4 times that of Gaudi2, and network computing power 2 times that of Gaudi2. Gaudi3 is expected to be equipped with up to 128GB of HBM3e memory, significantly improving AI learning and training performance. Intel stated that due to its continuously growing and validated performance advantages, as well as its competitive TCO (Total Cost of Ownership) and pricing advantages, Gaudi3 is expected to capture a larger market share in the AI chip suite market in 2024.

Foundry Business

The third entity will be an independent wafer foundry, and Richard stated that it could eventually become the world's second-largest wafer foundry, second only to TSMC. Richard wrote, "Intel may be the only viable alternative to TSMC, especially in high-performance applications such as AI integrated circuits, CPUs, GPUs, and FPGAs."

Previously, Dutch lithography giant ASML.US stated that the company has begun shipping the core components of its first latest chip manufacturing machine to Intel's chip factory. According to media reports, unnamed sources revealed that the most advanced core components of the high-NA extreme ultraviolet (EUV) lithography machine, known as high-NA EUV lithography, have been shipped to Intel's D1X chip factory in Oregon, indicating that Intel's ambitious plan to fully enter the chip foundry field has received the strongest support from lithography technology.

This technology is of great significance to both tech giants, as both companies are the most important leaders in the chip manufacturing industry. Gelsinger has promised that the chip manufacturer he leads will be the first to obtain this new type of machine, indicating his commitment to leading Intel back to the forefront of manufacturing technology. As for ASML, the purpose of launching this new technology is to assist chip manufacturers such as Intel and TSMC in conquering chip manufacturing technologies at the 2nm and below nodes, and to maintain the industry's reliance on its highest-end lithography equipment.

He estimates that the company's internal manufacturing revenue this year is about $20 billion, so based on a fivefold revenue calculation—TSMC, GlobalFoundries (GFS.US), and UMC (UMC.US) are also similar multiples—the value of the foundry business could reach $100 billion.

Richard mentioned Intel's 18A foundry process technology, which has brought victories to several customers, as well as 18A PDK 0.9, which he said is "an important milestone for Intel's development as a foundry company." He also stated that packaging is starting to become a differentiating factor, and Intel added two packaging customers in the third quarter, with six more in preparation. IMS Nanofabrication Business

In addition, Intel has sold approximately 30% of its IMS nanofabrication business to two partners, Bain Capital and TSMC, with an estimated valuation of $4.3 billion.

Product Business

Finally, Intel's product business seems to be improving, especially if the PC business rebounds in 2024 and Intel can maintain its market share in both the PC and server markets. Richard wrote, "We expect Intel to regain its leading position in process technology by 2025, so market share in servers and PCs should at least stabilize." He pointed out that 2025 could be a "strong year" for PCs, partly due to the infusion of artificial intelligence.

Richard noted that Intel's product business (excluding foundry, Mobileye, and Altera) generated $49 billion in revenue this year. As an independent non-fab company, its market value could reach $147 billion, about three times its revenue, not including $90 billion in real estate, factories, and equipment on its balance sheet.