Considering Purchasing Intel on the Foundry News? This Intel Chip Stock Offers a Superior Investment Opportunity.
Intel's stock, represented by the ticker INTC (-4.68%), has been a source of frustration for investors over the past decade. The tech giant has seen a 33% decline compared to its peers like AMD, Broadcom, Nvidia, and TSM (-0.93%). Notably, Intel remains the largest integrated device manufacturer (IDM) in the U.S., leading in the PC market, and benefits from the AI boom.
Last week, Intel's stock saw a surge, despite the departure of its AI and data center chief to work at Nokia. The push behind these gains was rumors of a potential joint venture between Intel and TSMC for manufacturing advanced chips in the U.S.
The TSMC-Intel rumor mill
The buzz around Intel and TSMC has originated from various sources, escalating in the media and on online platforms. Reports cite Vice President J.D. Vance's comments at an AI conference in Europe about the Trump administration's aim to establish powerful AI systems built in the U.S. with locally designed and manufactured chips. Intel has become the primary beneficiary of the CHIPS Act and push towards strengthening chip manufacturing in the U.S., which has fueled the belief that it would emerge as a winner in this direction.
Several media outlets have reported TSMC and Intel's talks with the Trump administration, hinting at a possible joint venture or TSMC taking control of Intel's foundry operations with a significant stake.
Will the Intel-TSMC deal come to fruition?
TSMC's CEO, C.C. Wei, directly rejected the possibility of acquiring one of Intel's manufacturing plants during the October earnings call. However, the prospect of a U.S. government's involvement and attractive deal terms could be compelling enough to lure TSMC.
Intel bulls have not considered the potential deal from TSMC's perspective. TSMC has a commanding position in the chip manufacturing market, with a strong foothold in advanced chip production. The Taiwanese titan out-performs Intel in terms of growth and profitability, indicating that it's less in need of a rescue and more inclined to think strategically about a potential acquisition.
Intel's financial state and challenges
Intel announced a restructuring plan in August, intending to lay off at least 15% of its workforce. The board of directors then pushed out CEO Pat Gelsinger, replacing him with two interim co-CEOs. Moreover, Intel's AI and data center chief also left the company last week.
The company's struggle with its foundry business and core chip design sector leaves investors questioning whether the potential TSMC deal is the solution for Intel's issues. Even if Intel can shed its foundry business, the company continues to face challenges in its chip design business.
The winner in this scenario
Prior to the fate of Intel's foundry business being decided, various troubles have mounted. Intel's revenue is declining, and margins are compressing. The company is losing market share to AMD, and its AI push has failed to materialize. Investors should look towards TSMC as the more likely winner, considering its stronger bargaining position.
Meanwhile, Intel faces several other challenges, such as leadership vacancies, revenue declines, and market share loss. In the first quarter, the company projected a revenue decline and just breakeven performance, after adjustments. Pawning off its foundry business to TSMC may be Intel's best option given the circumstances, but it does not necessarily make the stock a compelling investment choice. Buying Intel stock based on TSMC-related rumors seems to miss the point, and the smart play could be investing in TSMC instead.
Enrichment Data
Intel's financial struggles have pushed it to invest heavily in new manufacturing plants, such as a $25 billion commitment to expand its Kiryat Gat facility in Israel. The company's former CEO, Pat Gelsinger, aimed to position Intel as a manufacturer of advanced chips for other companies, a strategic shift from its traditional model.
There are various possibilities for the potential Intel-TSMC deal, including a partial or full acquisition of Intel's U.S. manufacturing plants or a joint venture funded by the CHIPS Act. The U.S. government has actively encouraged the deal to bolster domestic chip manufacturing, but there are concerns about security implications if a foreign entity like TSMC takes control of Intel’s American factories.
TSMC's advanced technology is its competitive edge, and sharing it with Intel could jeopardize this advantage. A joint venture could impact TSMC’s gross margins and create overcapacity for their fabrication technologies. Investment expert Liu Pei-chen from the Taiwan Institute of Economic Research believes that a joint venture with Intel may place TSMC in a disadvantageous position.
- Despite Intel's stock surge due to TSMC-Intel rumors, investors should be cautious as Intel's financial state and challenges, such as a restructuring plan, leadership vacancies, and declining revenue, remain concerns.
- TSMC, with its commanding position in the chip manufacturing market and strong growth and profitability, might view a potential acquisition of Intel's foundry operations as less about rescuing Intel and more about strategic opportunities.
- The Intel-TSMC deal, if it materializes, could potentially be funded by the CHIPS Act, but there are concerns about security implications if a foreign entity like TSMC takes control of Intel's American factories.
- Intel's AI and data center chief leaving the company, coupled with its struggle with its foundry business and core chip design sector, has led some investors to question whether the potential TSMC deal is the solution for Intel's issues or if buying Intel stock based on TSMC-related rumors is the misguided play.
