Intel Propels Chip Stocks

A slew of chip stocks stretched to new 52-week highs Friday, after an analyst boosted his rating on Intel (INTC) and predicted that the PC microprocessor market is set to undergo a significant transformation.

Goldman Sachs analyst James Covello upgraded Intel from neutral to buy on Friday, slapping a $28 price target on the stock.

According to Covello, microprocessor rival Advanced Micro Devices (AMD) is planning to outsource most, if not all, of its chip manufacturing next year.

The move, wrote Covello, would benefit Intel more than AMD, because the transition to using contract manufacturers could cause AMD to lose its technological edge.

What's more, AMD's switch to a fabless model would fundamentally change the dynamics of the microprocessor market, Covello said.

"We believe that being the only dedicated capital spender in the [microprocessor] market would allow Intel to control future excess capacity more efficiently than in previous downturns, when both Intel and AMD felt the pressure to continue to ramp capacity in order to remain ahead of one another," Covello said.

For the PC microprocessor market, which has been plagued for months by excess inventory and aggressive price cuts by both Intel and AMD, such a shift would be good news.

The theory about AMD's manufacturing plans, which Covello said was based on discussions he had with companies during a recent trip to Asia, sent Intel shares up roughly 3.3% in midday trading to a new 52-week high of $24.

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