Why Intel Stock Rallied Tuesday Morning
Key Points
DigiTimes is reporting that Intel plans to raise prices by 10% to improve its gross margin.
A Wall Street analyst issued an upgrade on Intel's improving prospects.
The stock is pricey.
Shares of Intel (NASDAQ: INTC) climbed out of the gate on Monday, rising as much as 8.6%. As of 11:20 a.m. ET, the stock was still up 8.3%.
The catalyst that drove the semiconductor company higher was a report that it may be raising prices, along with a corresponding upgrade from a Wall Street analyst.
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Third time's a charm
A media report emerged early Tuesday that Intel may be planning another round of price increases as the company works to improve its gross margin rather than taking market share. Intel is expected to increase the price of its CPUs by another 10% later this year, according to a report that first appeared in DigiTimes.
If the report is accurate, this would mark the third such price increase this year, after hikes in the first quarter and again in July.
On the heels of this news, Northland Securities analyst Gus Richard upgraded Intel to outperform (buy), from market perform (hold), with a price target of $120. For those keeping score at home, that represents potential upside of 25% compared to Friday's closing price (ahead of the Labor Day weekend).
The analyst cited "material progress" in Intel's turnaround, with particular emphasis on the company's foundry ambitions. Additionally, the current CPU shortage will work to Intel's advantage, giving the chipmaker pricing power -- at least for now.
Intel has previously announced plans to become the world's second-largest foundry by 2030, and while the company has certainly made progress, it still has work to do to achieve that goal.
Moreover, Intel stock is pricey at 68 times forward earnings and 51 times next year's expected earnings, so there's already a lot of growth baked into today's stock price.
Danny Vena, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intel. The Motley Fool has a disclosure policy.