JPMorgan upgrades Intel's rating to neutral, as the risk-reward profile becomes balanced.

Written by: Rita

Intel closed at $89.85 on October 16, just about 5% below J.P. Morgan’s $85 target price for December 2027. On October 18, 2026, J.P. Morgan upgraded Intel (INTC) from Underweight to Neutral in its report. This move suggests that the multi-year bearish trade on Intel has largely played out, and the current risk-reward profile is nearing balance.

J.P. Morgan's rationale focuses on execution. Following management changes, the competitiveness of data center CPUs has improved, with the Data Center and AI Group (DCAI) posting an operating profit of $2.5 billion in Q2 26, surpassing client business for the first time. The 18A-P has entered risk production, and the 14A is locked in for high-volume production in 2028. Annualized revenue from ASIC services is nearing $2 billion, representing approximately a threefold year-over-year increase. J.P. Morgan believes these developments are sufficient to warrant removing its underweight rating.

JPMorgan has not shifted to a bullish stance. External manufacturing scale remains small, and management has indicated that free cash flow in 2027 will be "more challenging," with incremental dilution remaining a key risk. The upgrade addresses downside potential, but evidence for upside still depends on four validation points.

Intel's stock has declined approximately 36% from its June peak, while the semiconductor sector has retreated 20% to 25% over the same period. Since JPMorgan downgraded Intel to Underweight in November 2022, SMH, SOX, Broadcom (AVGO), and AMD have outperformed Intel by 65%, 37%, 115%, and 148%, respectively. JPMorgan believes that most of the rationale behind its years-long underweight stance has already been realized.

The valuation multiple is also narrowing. Intel is currently trading at approximately 25 times J.P. Morgan’s 2028 EPS estimate of $3.60, compared to the sector multiple of 24x, which has narrowed Intel’s premium relative to the sector throughout most of 2026. J.P. Morgan has set a price target of $85, based on a 24x multiple of the sector’s 20x to 25x P/E range, applied to the 2028 EPS estimate of $3.60, as of December 2027.

Dilution pressure has now been priced into the benchmark. Outstanding shares have increased from approximately 4.4 billion a year ago to about 5.1 billion. Cumulative fundraising of approximately $20 billion includes the U.S. government’s 9.9% equity conversion, NVIDIA’s $5 billion investment at $23.28 per share, and SoftBank’s $2 billion placement. J.P. Morgan believes the risk of further significant dilution is now more fully reflected in the current stock price.

In Q2 2026, DCAI generated an operating profit of $2.5 billion, surpassing the client business for the first time. The report identified servers as Intel’s largest profit pool and described demand for Granite Rapids as “extremely tight,” with long-term agreements (LTAs) from customers like Google extending visibility through 2027. The client business continued to be driven by ASP and product mix, with AI PCs accounting for two-thirds of the client portfolio.

There has been a change in the manufacturing timeline. 18A-P is in risk production, while 14A is fully committed to high-volume production in 2028, with a risk production target set for the second half of 2027. The 0.9 process design kit (PDK) will be delivered in October. J.P. Morgan also noted improvements in yield, process design rule compatibility, and advanced packaging, with EMIB-T advanced packaging backlog ramping up toward 2027.

ASIC services offer additional options. J.P. Morgan estimates this business generates annual revenue approaching $2 billion, a tripling year-over-year, with a path toward $4 billion. This business leverages Intel’s intellectual property portfolio, system-on-chip design capabilities, and advanced in-house manufacturing. As hyperscalers accelerate spending on custom chips, the strategic importance of ASIC services to Intel is increasing.

External foundry annual revenue is close to $1 billion, while TSMC’s同期 annual revenue is $150 billion—two orders of magnitude apart. JPMorgan acknowledges Intel’s progress in yield and acquiring new customers, but the scale of external foundry remains small. For foundry to become a valuation driver, it needs anchored flagship customers and proven economic viability at leading nodes.

Capital structure is another constraint. Management has explicitly stated that free cash flow in 2027 will be “more challenging,” potentially requiring another trip to the capital markets. JPMorgan lists incremental dilution as a key risk. Much of the relative caution over the past 12 months stemmed from suspended dilution; while most of this suspended dilution has now fallen into the base case, the capital needs for 2027 remain unchanged.

JPMorgan maintains a neutral rating, awaiting the finalization of contract manufacturing clients. The report identifies external contract manufacturing clients as an upside risk and a key validation point for continued观望. The annualized revenue from contract manufacturing in the first half of the year approached $1 billion, but this figure is still far from significantly altering the profit structure. JPMorgan does not view progress in contract manufacturing as the primary driver for a rating upgrade.

The first validation point is the execution of the data center CPU roadmap and the ability to compete against AMD’s Turin, Venice, and Verano, which determines whether DCAI’s profit margin trajectory can be sustained. The second validation point is the overall AI computing strategy, including the ramp-up of Crescent Island GPUs (recently renamed “D-Series”) and the disclosure of design wins for AI ASICs and inference accelerators.

The third validation point is the onboarding of external OEM customers. The fourth validation point is strengthening the data center network capabilities, either through organic growth or acquisitions. J.P. Morgan believes that networking is the fastest-growing layer in the AI stack, and Intel’s efforts to bolster its position in this layer could transform its standing in AI computing. Until all four validation points are fully achieved, the neutral rating reflects the need for market patience.

Regarding earnings projections, the report forecasts $3.60 in EPS for 2028, approximately 15% above market consensus. Upside risks include faster execution of the CPU roadmap, onboarding of foundry anchor customers, and accelerated wins in ASIC design. Downside risks include delays in the next-generation node, memory-driven BOM inflation dampening PC demand, and continued share gains by AMD in client and server markets.

The bearish trade has largely played out, but the bullish evidence has yet to materialize.

Disclaimer

This article is a compilation and interpretation by Chaoxiang Research of a third-party brokerage research report (JPMorgan, October 18, 2026), combined with publicly available market information. The ratings, price targets, earnings forecasts, and related judgments cited herein reflect the views of the brokerage's analysts and represent the position of their respective institution only; they do not reflect the views of Chaoxiang Research nor constitute any investment advice.

The market carries risks; make decisions independently. This article should not be used as a basis for buying or selling any securities.