Take A Hard Pass On Intel

Chip stock Intel (INTC) popped around 7-8% when it was announced that the US government plans to take a 10% stake in the company, but I’m not impressed.

It was more or less out of the blue.

The federal government’s absorbing part of a chip company talks to the heavy-handed approach they are taking with many facets of American life.

Initially, we got tariffs, and now this appears like an offshoot of the government meddling in many different parts of public business life.

Intel has lost over 60% of its market value in 2024, grappling with manufacturing delays and struggles to attract external foundry customers.

By securing government backing, INTC may gain credibility with domestic clients and access to further contracts, positioning it as a cornerstone of national security-driven chip production.

Intel’s stake underscores a broader trend of U.S. government intervention in the semiconductor industry, as evidenced by a 15% revenue share from Nvidia and AMD’s China chip sales and a $400 million stake in MP Materials.

Government involvement could impose strategic mandates, such as prioritizing national security, which may conflict with shareholder interests.

Competitively, Intel’s bolstered foundry ambitions could challenge rivals like AMD, Nvidia, Qualcomm, and Broadcom, particularly if Intel improves its manufacturing capabilities.

Yet, TSMC (TSM) and Samsung’s dominance in advanced nodes (e.g., 3nm and below) suggests Intel’s impact may be limited in the near term, potentially allowing U.S. rivals to maintain market share.

A stronger Intel could intensify domestic competition, but foreign foundries like TSMC may counter with U.S. investments or aggressive pricing, squeezing margins.

I am not a big fan of any federal government privatizing even a fraction of a tech company.

The stock popped initially, but then sold off 5%. The 5% is the most interesting part of the price action here.

I do believe there is great operational risk involved in taking a stake in a tech company.

The chance of mismanaging the stake is quite high, especially with government trust trending lower and lower each year.

The federal government could just easily write this off on top of the $37 trillion of debt and counting.

The anti-competitive nature of such a move is something to be concerned about.

Who gets to decide what other tech companies the U.S. government can invest in and at what percentage?

So you see, it gets quite murky because companies should do battle the way they are supposed to, which is in the free markets.

The free markets will deliver healthy price discovery at a transparent price.

The government infusing itself into INTC will inflate the price of the stock in the short-run, and then run the risk of delivering a shoddy product and mediocre management.

The stock will be in trouble if this idea goes sour.

Who really thinks government will be held accountable for running INTC into the ground?

At a time when Nvidia (NVDA) is running circles around most chip companies and AMD (AMD) is doing all it can do to catch up – TSM owns the foundry business as well – this seems like the beginning of the end for INTC.

I would take a hard pass on INTC stock and just focus on the best of class, like Nvidia or Taiwan Semiconductor.