Intel Looks Pricey as Data Center Growth Looks Tepid

Intel (INTC) reported first-quarter results that were in line with our estimates. The chip leader modestly increased its full-year revenue guidance thanks to average selling price, or ASP, strength in PC processors and growth in its memory business, while providing an aggressive spending reduction target for 2020. Despite these highlights, we remain concerned with the relatively tepid top-line growth in Intel’s crown jewel data center group, or DCG. The first quarter marked the sixth consecutive period of sub-10% year-over-year revenue growth in DCG. We remind investors that Intel revised its long-term DCG growth rate downward from 15% to the high-single digits. Shares were moderately lower during after-hours trading, and we are maintaining our $31 fair value estimate for wide moat-rated Intel. We recommend prospective investors seek a wider margin of safety before committing capital.

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