Summary - Northland Capital Markets downgraded Intel and Astera Labs to Market Perform on Tuesday, citing stretched valuations and concerns that hyperscalers will reduce spending on artificial intelligence infrastructure in calendar year 2027. The analyst house said it models overall datacenter spending to fall in 2027 as hyperscalers become "increasingly cash-strapped."
In research notes covering both firms, Northland highlighted how the financing picture for hyperscalers has shifted. The firm said that, since the start of last year, hyperscalers have raised $260 billion in debt and that buybacks have collapsed in the most recent quarter. These dynamics are central to Northland's view that aggregate datacenter capital expenditure will decline into 2027.
On Intel, Northland acknowledged progress in the company's turnaround, saying it is "making measurable progress in its turnaround" and that it expects estimates to rise as demand for server CPUs strengthens. The analyst also ran a scenario in which Intel's datacenter business grows 40% in 2027. Even under that projection, Northland concluded that Intel shares trade at an elevated multiple - 38 times its out-year estimate of $3.20 - and noted that it has suspended its price target on the stock.
For Astera Labs, Northland expects consensus estimates to move higher over the next couple of quarters as its Scorpio-X product ramps. The firm said its previous $225 price target - which was based on 45 times its calendar year 2028 estimate of $5.00 - is no longer justified at current market levels. Northland summed up the earnings outlook by saying that achieving $5.00 in earnings in 2028 "is achievable, but not a slam dunk."
Key points
- Northland cut Intel and Astera Labs to Market Perform, citing high valuations and a modeled decline in datacenter spending in 2027.
- Hyperscalers have raised $260 billion in debt since the start of last year and buybacks have collapsed in the most recent quarter, factors that inform Northland's cash-strapped hypothesis.
- Even with a projected 40% datacenter revenue increase for Intel in 2027, the firm views the stock as expensive at 38 times an out-year $3.20 estimate; it has suspended Intel's price target. For Astera Labs, prior valuation assumptions supporting a $225 target are no longer warranted despite anticipated revenue and estimate improvements from Scorpio-X.
Risks and uncertainties
- Datacenter spending assumptions - The central risk is timing and magnitude of hyperscaler capital allocation shifts; Northland models a decline in 2027 but that outcome depends on hyperscalers' future financing and spending decisions.
- Execution on product ramps - Estimates for both companies hinge on product adoption and execution, notably server CPU demand for Intel and Scorpio-X ramp for Astera Labs across the next couple of quarters.
- Valuation sensitivity - If revenue or earnings trajectories deviate from Northland's modeled scenarios, multiples and price targets may be reassessed; current valuations are a point of contention.