Citi has retained its Neutral rating on Intel Corporation (NASDAQ: NASDAQ:INTC), with a consistent price target of $25.00.
The decision follows Intel's recent announcement of a significant deal with Amazon (NASDAQ:AMZN) Web Services (AWS) to supply custom Xeon processors and develop an AI fabric chip.
Despite the new business, Citi remains cautious about the profitability of customizing Xeon chips, suggesting these could potentially yield lower margins.
Intel disclosed on Monday that it had secured a multi-billion-dollar agreement to provide AWS with tailored Xeon chips. This deal was not considered a true foundry win by Citi since Intel already manufactures Xeon processors.
The concern lies in the customization of these chips, which may lead to reduced profit margins for Intel.
In addition to the AWS deal, Intel announced it has been awarded up to $3.0 billion in contracts from the U.S. government, spread over several years.
The financial firm's analyst cited these recent developments as reasons for maintaining the Neutral rating on Intel's stock.
According to the firm, while the government contracts are beneficial, they are not expected to drastically change the company's trajectory over the time frame specified.
Citi's stance reflects a cautious outlook on Intel's foundry business, with the recommendation that the company should consider exiting this segment.
The firm's reiteration of the Neutral rating indicates that, despite the new deals with AWS and the U.S. government, there is no change in the expected performance of Intel's stock in the near term.
Meanwhile, Intel been awarded up to $3 billion for its Secure Enclave program, aimed at bolstering the resilience of U.S. technological systems, and has also secured eligibility for up to $3.5 billion in federal grants for producing semiconductors for the U.S. Department of Defense. These developments underscore a strategic partnership between Intel and the U.S. government to strengthen America's semiconductor supply chain.
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