The bug is a curious story. It seems like the architecture has been in place for many years. Why has it come to light now? There are still more questions than answers. Both Intel and challenger ARM are affected while AMD is not. We don’t doubt that the fix will require Intel to spend some money, and there will be some palliative care required to larger customers, i.e. some price concessions.
But more importantly, the same demand drivers that set up for a stronger 4Q17 & 1Q18 which were in place yesterday (to read our full note from 12/22/17 moving INTC to Best Ideas LONG CLICK HERE), are all still in place today. There is an acceleration of investment into data analytics (including ML/AI) happening now. There is a resurgence of the super-computer market buyers. There is a healthy setup for Altera (finally). And the negatives of MBLY are behind us – from here it can only contribute upside. Even the modem business should add some bps of revenue growth in the 4Q17-2Q18 timeframe.
Intel’s business has been featured as having long term negative tailwinds by us and many others over time. But there are also some neat positives. The 100% digital business means it grows with digital innovation. And guess what – we are in an innovative period/framework. We think the catalysts are as we set out above, but we are also open minded as there are many sides of the demand cube that can turn positive for Intel’s server business today. The stock has had a nice run – does it discount a reacceleration in DCG? We don’t think so.
Bottom line: Bug is bad. It will cost money. It will get fixed. Notwithstanding, here is a chance to own a big cap stock with n-t re-acceleration tailwinds trading at a discount to peers.