Previously, we saw that Intel’s (INTC) acquisition of Mobileye (MBLY) could be a long shot when it comes to future growth opportunities in autonomous driving. Angelo Zino, analyst at CFRA Research, is happy that Intel has acted early on the next big trend of autonomous cars. However, most analysts don’t share his enthusiasm. While they’re glad that Intel is diversifying, they find the price of the acquisition too high.
Some analysts downgraded Intel after the merger announcement, which saw INTC stock fall 2.0% in the last two days. Let’s see what some analysts are saying.
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Ambrish Srivastava, an analyst at BMO Capital Markets, said Intel is paying 29 times Mobileye’s 12-month forward sales. That’s much higher than the industry average of about five times. Such a high premium for an opportunity that’s still in its nascent stage is a huge bet and could be revealing Intel’s desperation to not miss out on another big opportunity.
Intel stock has risen only 13.3% in the last 12 months. Nvidia (NVDA) and Advanced Micro Devices (AMD) have risen 400.0% and 200.0%, respectively, in the same period. Acquiring Mobileye could be something Intel felt it had to do in order to boost future growth potential.
Christopher Rolland, an analyst at Susquehanna International Group, has a similar view of the Intel-Mobileye merger. Intel missed the mobile revolution when it was still focusing on PCs (personal computers). As a result, ARM Holdings now dominates the mobile market with ARM-based chips powering 95.0% of smartphones in use today. Most likely, Intel could have had that position if its former chief executive officer Paul Otellini had acted early on the mobile revolution.
Intel’s current chief executive officer Brian Krzanich is trying to avoid the same mistake with the auto market. However, Rolland is doubtful that the Mobileye deal will generate value in the long term, given Intel’s history of failed mergers and acquisitions. We’ll look at Intel’s merger and acquisition history in the next part of this series.
Hans Mosesmann, an analyst at Rosenblatt Securities, is optimistic that Nvidia has a technology advantage over Intel in both AI (artificial intelligence) and autonomous cars. He believes that Nvidia will be Intel’s biggest competitor.
Mobileye also has a faulty history with Tesla (TSLA), which saw the latter switch to Nvidia for its autopilot project. The incident saw Citron Research put a $35 price target on Mobileye, and now Intel is paying more than $63 per share for Mobileye.
Mark Lipacis, a Jefferies analyst, has downgraded Intel after revenue growth for the company’s data center group slowed from double-digit to single-digit percentage points. The Mobileye deal is a huge deviation from x86 technology.