Shares of Intel Corp. (INTC) are already up about 6% since BMO Capital Markets gave the chipmaker a thumbs-up earlier this week for finally demonstrating its willingness to get serious about its finances. Intel’s stock was upgraded from market perform to outperform and given a new price target of $58, according to Barron’s.   

That new price target is about 23% more than Thursday’s closing price of $47.10, which is up about $2.70 since Barron’s published BMO Capital’s report. Such a price appreciation is not beyond reasonable considering Intel’s under-owned shares, which currently trade at a price-to-earnings ratio (P/E Ratio) of 16.33 and have historically traded below the market’s multiple. The Nasdaq 100, of which Intel is a part, is trading at around a P/E ratio of 26. (To read more, see: Why Nvidia, Intel, AMD, Broadcom Could Surge on Momentum.)

New Financial Discipline

But to go from an under-owned stock to one in line with the rest of the market, Intel needs to follow through on its commitment to fix the financial side of its business model. In the past Intel has struggled with a lack of financial discipline manifesting itself in poor capital allocation decisions, nonsensical acquisitions, or a failure to maintain an efficient operating model, according to BMO Capital’s Abrish Srivastava. 

Earlier in the year, Intel’s CFO Robert Swan announced that the company was establishing a new operating expense target of 30% of revenue, expected to be reached by no later than 2020. Based on Intel’s revenue and operating expense projections at the time, 34.2% was the projected operating expense target for 2017.

If Intel can deliver on that promise, Srivastava believes the company’s earnings potential is not being adequately reflected in its share prices, according to Barron’s.

Leading the Way in AI

Srivastava also believes that Intel’s position in the growing artificial intelligence (AI) market looks good, especially the relationship the chipmaker has formed with Facebook as it pursues the architectural development of its Nervana chip. (To read more, see: Intel Has Invested Over $1B in AI Startups.)

Amir Khosrowshahi, who is vice president and general manager of Intel’s “Artificial Intelligence Products Group” as well as co-founder of Nervana Systems, a tech startup bought by Intel in August of last year, believes that Intel’s innovation, chip-making abilities, and software tools put them at the forefront of the AI market, according to a separate article by Barron’s.

Khosrowshahi claimed that Intel is “leading the way” in designing the “world’s first neural network processor.” 

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