Intel Shares Decline Following Citi Downgrade on Nvidia Partnership and Foundry Concerns

Technology Sector Faces Scrutiny as Intel Shares Decline Amid Citi Downgrade

Intel Corporation (INTC) shares experienced a notable decline on Friday, September 19, 2025, after Citi downgraded the semiconductor giant from a "Neutral" to a "Sell" rating. The move, initiated by analyst Christopher Danely, cast a bearish shadow over Intel’s short-term prospects, particularly questioning the strategic efficacy of its recently announced Nvidia (NVDA) partnership and the long-term potential of its foundry operations.

The Event in Detail: Citi’s Bearish Stance on Intel

The downgrade by Citi followed a period of significant investor optimism that saw Intel’s stock surge over 50% since early August, including a substantial 22.8% to 26.6% jump the previous day. This rally was fueled by news of a Nvidia investment of $5 billion and a strategic collaboration aimed at developing new chips. However, Citi’s assessment countered this positive momentum, leading to Intel shares slipping between 3.24% and 3.7% in morning trading, closing the day near $29.55 or $29.60.

Despite raising the price target for Intel from $24 to $29, Citi’s "Sell" rating implies a 5.1% downside from Intel's closing price of $30.57 on the day prior to the downgrade. Danely’s skepticism centered on three primary concerns:

• Limited Impact of Nvidia Partnership: Citi argued that the collaboration, which involves Intel building CPUs for Nvidia’s AI platforms and integrating Nvidia graphics into PC products, would offer "minimal improvement for Intel." The analyst contended that "better graphics won't make Intel's CPU better than AMD's, given the processor is the main performance driver." Furthermore, the Nvidia investment was characterized as "more of a financial lifeline than a strategic leap."
• Modest AI Market Opportunity: Expectations for Intel’s AI products stemming from this deal were downplayed, with the total addressable market estimated at a mere $1 billion to $2 billion. This figure represents only approximately 3% of Intel's projected 2026 sales, falling short of what many investors may have been pricing in.
• Foundry Business Challenges: A significant concern revolved around Intel’s leading-edge foundry ambitions. Citi believes Intel is "years behind TSMC" (Taiwan Semiconductor Manufacturing Co.) in advanced node leadership and possesses a "minimal chance to succeed" in this highly competitive segment. The stock’s rally, in Citi’s view, was prematurely pricing in success for this unlikely venture, despite Intel’s 18A manufacturing process being slated for volume production by late 2025.

Analysis of Market Reaction: Re-evaluating Strategic Partnerships

The market’s reaction highlights a re-evaluation of Intel’s strategic direction and valuation post-Nvidia deal. The initial surge in Intel’s stock reflected investor belief in a revitalized competitive position through the Nvidia collaboration. However, Citi’s detailed analysis introduced a critical counter-narrative, suggesting that the partnership’s benefits might be more financial than fundamentally transformative for Intel’s core challenges, particularly against rivals like AMD in CPUs and TSMC in foundry services. This downgrade prompted investors to take profits after the stock's significant recent gains, indicating a shift in sentiment towards a more cautious outlook.

Broader Context and Implications: A Challenging Turnaround Ahead

Intel’s financial and competitive landscape remains challenging. Fitch Ratings concurrently downgraded Intel’s credit rating from BBB+ to BBB, citing broader risks such as weak demand for AI chips and an unclear roadmap for full-stack AI solutions. The company’s foundry division faces substantial headwinds, projected to incur an $8 billion loss in 2024, with revenue in this segment declining for the past two years.

Quantitative metrics further underscore the concerns. With a market capitalization of $138.55 billion and a price-to-book (P/B) ratio of 1.33, some analyses suggest Intel is "Modestly Overvalued." Its Z-score of 1.46 places it in a "distress zone," indicating potential bankruptcy risk within the next two years, while a Piotroski F-Score of 3 points to poor business operations. Over the past five years, Intel has experienced declining revenue per share and an average annual decline of 11.3% in its long-term gross margin. These figures illustrate the uphill battle Intel faces in its turnaround efforts, despite efforts like the 18A process and ambitious goals for its foundry segment to achieve breakeven by 2030.

Expert Commentary: Divided Views on Wall Street

The Citi downgrade reveals a divided perspective among financial analysts regarding Intel’s future.

"Better graphics won't make Intel's CPU better than AMD's, given the processor is the main performance driver," stated Christopher Danely of Citi, articulating the core of his skepticism regarding the Nvidia partnership.

Conversely, Benchmark Equity Research offered a more optimistic view, upgrading Intel to a "Buy" rating. They considered the Nvidia collaboration a "significant fundamental tipping point" and a "strong vote of confidence" in Intel’s roadmap. Morgan Stanley also acknowledged the deal as a "positive development overall" but noted its "benefits at the margin." In contrast, Bernstein remained more skeptical, asserting that the Nvidia arrangement does not involve Intel Foundry and the $5 billion investment is "just 'money,'" reflecting Nvidia's continued preference for TSMC for its high-end manufacturing.

Looking Ahead: Execution and Competitive Dynamics

The immediate future for Intel will be largely dictated by its ability to execute on its strategic initiatives, particularly in its foundry business, and to demonstrate tangible competitive advantages from the Nvidia partnership. Investors will closely monitor further developments regarding the integration of Nvidia technology, the growth of Intel’s AI product portfolio, and progress in its 18A manufacturing process. The ongoing competition with AMD in CPUs and TSMC in advanced foundry nodes will remain a critical determinant of Intel’s market position and valuation. Upcoming economic reports and company earnings will also provide further clarity on the broader semiconductor market trajectory and Intel’s standing within it.