Morningstar

Intel: The US Government’s Stake is Good News but Not an All-Clear Sign

We still believe Intel faces execution risks as its turnaround continues.

The Intel logo can be seen at the headquarters of the chip company.
Andrej Sokolow/picture alliance via Getty
Securities in This Article
Intel Corp
(INTC)

Key Morningstar Metrics for Intel

On Aug. 22, Intel INTC and the US government formally announced an agreement in which the government will make an $8.9 billion investment in the firm’s common stock at a price of $20.47 per share, representing a 9.9% stake.

Why it matters: We think Intel investors should be encouraged by the initial terms of the deal. The government’s ownership will be passive, “with no Board representation or other governance or information rights.”

  • Our early fears were that a host of strings, or even unintended consequences, would factor into this deal, making it a case of “Be careful what you wish for.” The initial terms assuage these concerns.

The bottom line: We maintain our $21 fair value estimate and Very High Uncertainty Rating for no-moat Intel. The announcement is good news for shareholders, but we still believe Intel faces execution risks as its turnaround continues.

  • Our best-case scenario would see the US government encouraging (if not requiring) leading US fabless chip designers to use Intel Foundry for at least a portion of their manufacturing needs without any onerous tax or pricing terms.
  • On the other hand, this investment likely locks the company into ongoing investment in Intel 14A and beyond. Our bearish scenario would see Intel continuing to invest heavily in Foundry but still failing to capture large customers.

Key stats: The agreement replaces the US government’s previous Chips Act funding plans. Earlier Chips Act grants will make up $5.7 billion of the investment, while $3.2 billion is part of the Secure Enclave program, wherein Intel will provide semis to the government.

  • Intel noted that it previously received $2.2 billion of Chips Act grants, which do not involve ownership of Intel’s shares, thus making the government’s total investment in Intel equal to $11.1 billion.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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