Intel: A US Financial Stake in Intel Would Be Good for Shareholders

Key Morningstar Metrics for Intel

• Fair Value Estimate: $21
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Very High

Intel Stock Update

Bloomberg reported that the US government is in discussions with Intel INTC to potentially take a stake in the chipmaker. Intel’s shares rose 7% on the news.

Why it matters: Intel no longer controls its own destiny in terms of building leading edge fabs to support its once-dominant processor (CPU) businesses. Rather, Intel will require capital from investors or governments, along with orders from external customers, to support the business.

• We also believe the US government wants to ensure that leading-edge chip manufacturing is done onshore. These fabs are led by Taiwan Semiconductor, or TSMC, in Taiwan today. Even though TSMC is investing heavily in US fabs, we suspect the US strategically wants Intel to succeed.
• This report suggests that Intel CEO Lip-Bu Tan’s meeting with US President Donald Trump earlier this week was a successful one.

The bottom line: We maintain our $21 fair value estimate for no-moat Intel and retain our Very High Uncertainty Rating. We view the stock reaction as reasonable if a deal were to fall in place but don’t have much confidence that such a deal will ultimately be consummated.

• That said, this report is nothing but good news to Intel investors. We still view the best-case scenario for Intel investors is if the company were to receive an infusion to support its fab buildouts, either from a consortium of partners/customers or, in this case, the US government.

Coming up: The Bloomberg report specifically cited potential investment in Intel’s new fabs in Ohio, where production has been delayed.

• Tan was clear that it will not invest in next-generation Intel 14A chip production if it can’t secure enough potential chip orders from outside customers.