Goldman Sachs Rarely "Pours Cold Water": Why Only a Neutral Rating for Intel Despite Bullish on Two Key Businesses?

Original Author: Rita

Introduction

Goldman Sachs has issued its first coverage report on Intel, assigning a Neutral rating and a 12-month price target of $150 (a 13.9% increase from the base stock price of $131.65). Behind this seemingly contradictory assessment lies a clear investment logic: foundry services and server CPUs are indeed growth highlights, but these opportunities have already been priced in by the market. In comparison, AMD, Nvidia, and Broadcom offer better choices in terms of visibility and valuation.

The Paradox of a 'Neutral' Rating

Issuing a Neutral rather than a Buy rating on a first coverage report is inherently interesting. Goldman Sachs did not claim Intel is struggling; rather, it explicitly pointed out two genuine positives.

First is the foundry business. Intel is advancing its external wafer business in advanced packaging, particularly with EMIB technology. Goldman Sachs estimates this segment could generate $11 billion in revenue by 2030 (under a base case scenario), growing from zero to tens of billions. This is growth backed by confirmed customer orders, not just a speculative story.

Second is server CPUs. Driven by Agentic AI, enterprise demand for server computing power will continue to grow. Leveraging the stickiness and sunk costs of the x86 architecture in the enterprise market, Intel is expected to sustain a 28% compound annual growth rate (CAGR) until 2030. This implies Intel's revenue outlook for server CPUs is on an upward trajectory, rather than being squeezed.

However, precisely because both narratives are true, they have already been factored into the stock price. Intel's current share price already reflects these expectations. Based on its 2030 profitability, a 21x P/E multiple yields a price target of $150, indicating Goldman Sachs believes there is limited upside from buying now. Moreover, in terms of supply chain certainty and valuation attractiveness, AMD, Nvidia, and Broadcom are all better positioned. This is the core reason Goldman Sachs issued a Neutral rating instead of a Buy.

The Foundry Business: A Multi-Billion Dollar Wager

Intel's foundry narrative is clear, but the focus is not on the scale itself, but on costs and competitiveness.

Advanced packaging costs are significantly lower than wafer foundry. EMIB (Embedded Multi-die Interconnect Bridge) technology allows Intel to perform chip integration for clients without building new fabs. This is good news for clients (lower costs, faster turnaround) and for Intel (lower capital expenditure, higher gross margins). Goldman Sachs estimates that the gross margin for this business could be over 50%, far exceeding the 20-30% typical of traditional wafer foundry.

The timeframe for the external wafer business is projected to open around 2028. While Intel's 7nm and smaller process nodes lag behind TSMC, the geopolitical context in Europe and the US means many clients are willing to pay a premium to diversify supply chain risks. Goldman Sachs forecasts this segment could generate $11 billion in revenue by 2030, implying Intel's profit contribution from this area could significantly boost overall profit margins.

But this narrative carries a time cost. Profit growth in 2027 and 2028 will primarily come from the core businesses (CPU and GPU). Volume growth from the foundry business will not materialize until after 2028. Therefore, if you expect Intel to deliver remarkable performance over the next 12 months, the foundry story won't help. This is another reason why Goldman Sachs is not particularly optimistic about Intel's current stock price.

Server CPU Growth of 28%, but Peers Are Faster

Server CPUs are Intel's traditional stronghold, and the rise of Agentic AI is revitalizing this segment.

Agentic AI differs from traditional large language model inference by requiring frequent multi-turn interactions and real-time responses, leading to higher demands on CPUs and memory. This means enterprises cannot simply stack GPUs; they need efficient CPUs alongside them. Intel benefits from two key advantages here: the ecosystem completeness of its x86 architecture, and enterprise clients' entrenched procurement habits and supply chain dependencies on Intel.

Goldman Sachs predicts a 28% CAGR for Intel's server CPU business through 2030. While this sounds promising, it is actually quite modest within the AI chip cycle. Nvidia's data center division is growing much faster (nearly 200% year-over-year growth in 2024), and Broadcom and AMD also generally boast higher growth rates in specific niche segments.

The key issue is that Intel's growth is starting from an already large base. The CPU business is currently Intel's primary revenue source, with growth headroom constrained by the overall expansion rate of the server market. In contrast, the growth ceiling for GPUs and other AI-related chips is much higher. Therefore, from a relative return perspective, investing in GPU and network chip manufacturers may offer higher expected returns.

Why Peers Are Favored by Goldman Sachs

Among other tech chip companies covered by Goldman Sachs, AMD, Nvidia, and Broadcom have all received Buy ratings. Why is Intel excluded?

The core reason lies in the alignment of visibility and valuation. Nvidia's data center demand faces almost no downside risk, with significant growth potential remaining through 2030. AMD has a more aggressive product roadmap than Intel in both CPUs and GPUs. Broadcom is positioned in network chips to capture a major growth driver for large data centers. These companies offer higher growth expectations and lower risk.

At the same time, while Intel's foundry narrative is attractive, its commercialization validation period is longer. Visible orders start to appear in 2027, but true scale contributions won't be seen until 2030. In contrast, the demand curve for GPU chip manufacturers is already validated; the discussion is only about the magnitude of growth.

From a valuation perspective, Intel trades at 21 times its expected 2028 earnings. While Nvidia and Broadcom have higher multiples, they also have higher growth rates. For investors seeking high-certainty growth, a high-growth, high-multiple stock can be more advantageous than a low-growth, low-multiple one.

The Judgment Behind Goldman Sachs' Neutral Rating

Goldman Sachs' Neutral rating essentially implies a judgment: Intel's stock will neither decline nor surge dramatically. In the medium term, Intel might be weighed down by the strong performance of consumer chips and the speculative allure of the AI chip cycle. However, over the long term (3-5 years), the profit contributions from foundry and server CPUs will gradually materialize, and the potential for the stock price to recover to the $150 target will be validated.

Upside risks to this judgment include: stronger-than-expected customer interest in the foundry business, or better-than-anticipated share protection in the server CPU market amid the Agentic AI wave. Downside risks include: delays in the production ramp-up of advanced foundry processes, or faster erosion of CPU market share by AMD.

Catalysts include quarterly foundry order confirmations, the market performance of the next-generation Xeon, and the realization of gross margin improvements. However, none of these catalysts are 'imminent'. Therefore, for investors seeking quick returns, Intel may not be the optimal choice.

Conclusion

Goldman Sachs' logic is very clear: Intel has a story, the story holds water, but its value has already been priced in. In an era where peers offer higher growth rates and better certainty, Intel, pursuing steady growth, naturally gets relegated to the watchlist rather than the buy list.