Intel Stock Is Having the Best Run in 2 Decades: Here’s Why

Intel stock (NYSE: INTC) has skyrocketed this week and has added almost 25% to its market cap over the last five days. The stock has had the best three-day price movement in over 2 decades after it fell to a 14-year low in September last year. Here we’ll discuss what’s driving the recent rally in INTC shares.

There are reports that Intel which is the biggest beneficiary of the CHIPS Act might partner with Taiwan’s chip manufacturing giant TSMC. Notably, TSMC is the world’s biggest foundry and makes chips for multiple companies including Nvidia. The company’s revenues have skyrocketed over the last two years thanks to the growing demand for AI chips.

Intel and TSMC Might Partner for Foundry Business

Intel’s foundry business has on the other hand been losing money and lost a mammoth $13.4 billion last year. The segment’s operating losses widened as it posted a loss of $7 billion in 2023 and $5.2 billion in 2022.

In his note, Baird analyst Tristan Gerra said, “There are discussions from the Asia supply chain that the U.S. government will get involved in potentially the following: TSMC would send engineers to Intel’s 3nm/2nm fab, applying the company’s know-how to ensure that the fab and subsequent manufacturing projects from Intel become viable.”

He added, “The fab could be spun off into a new entity jointly owned by TSMC and Intel, and run by TSMC. The new entity would receive U.S. Chip Act funding.”

According to Gerra, “While there is no confirmation and potential completion of this project could be lengthy, we think this move makes sense, further building on Intel’s prior CEO’s focus on the company’s core competency, manufacturing. Going forward, Intel would benefit from significant cash flow relief and would focus on design and platform solutions, while a viable fab could finally attract key fabless companies to diversify into a geo-dependable manufacturing model.” Meanwhile, Baird maintained its neutral rating and $20 target price for Intel.

JD Vance’s Comments on Chip Manufacturing

US Vice President JD Vance’s comments about artificial intelligence (AI) chips being manufactured in the US have also supported the rally. Speaking at the AI summit in Paris, Vance said, “To safeguard America’s advantage, the Trump administration will ensure that the most powerful AI systems are built in the U.S. with American-designed-and-manufactured chips.”

Previously, there were fears that the Trump administration might withdraw the subsidies that the CHIPS Act provided for domestic chip manufacturing. However, Vance’s comments were seen as positive for Intel as the company is the leading chip company in the US even as it is now a pale shadow of its glorious past.

Intel Is Searching for a New CEO

Intel has been working without a permanent CEO after CEO Pat Gelsinger, who was leading the company’s turnaround efforts, abruptly retired in December. The company is currently functioning under two interim Co-CEOs and is searching for a new chief executive.

Dan Hutcheson, a vice chair at semiconductor-research firm TechInsights believes that finding the next CEO wont be an easy task for Intel. “That is going to take a while, finding someone with both product and foundry experience. There is almost no one out there qualified [in both areas] other than people from Intel,” said Hutcheson in his note.

Notably, Gelsinger, who was a former Intel executive, took over as the CEO in early 2021 and embarked on a plan to transform the struggling chipmaker. Under his leadership, Intel laid focus on three key areas.

Firstly, it worked on innovation in the chip designing business to effectively compete with the likes of AMD and Nvidia. The second leg of the turnaround strategy was pivoting the company to the foundry business where Intel started building chips for other companies. Finally, Intel started unlocking value in its subsidiaries and successfully listed Mobileye.

However, despite Gelsinger’s turnaround efforts Intel stock continued to fall and crashed to a multi-year low last year after dismal Q3 earnings. The company also suspended its dividend and announced that it would cut its workforce by 15%.

Intel is Looking at Strategic Actions

There have been reports that Intel is looking at strategic actions, including selling its business in full or part to create shareholder value.

Last year, there were reports that Qualcomm was looking to acquire Intel. While both Intel and Qualcomm are in the chip industry and compete in many markets, especially the PC industry, their business models differ. Qualcomm, like Nvidia, is a chip-designing company and relies on foundries like Taiwan Semiconductor Manufacturing Company to produce its chips.

Intel on the other hand has both a chip designing and foundry business. The company’s foundry business has been posting massive losses. However, Intel’s merger with another chip maker could face regulatory hurdles and Jefferies which has a $34 target price on Intel is not convinced that the company’s deal with TSMC will go through.

Chip Industry M&A Activity Has Faced Hurdles

Previously Chinese regulators blocked Intel’s bid to acquire Tower Semiconductor and Qualcomm’s proposed acquisition of NXP Semiconductor. Other regulators too have been wary of big mergers in the chip space, and in 2018, then-President Donald Trump blocked Broadcom from acquiring Qualcomm over national security concerns. More recently, Nvidia and Arm called off their merger amid regulatory heat in Asia, Europe, and the US. Arm, which is backed by Japan’s SoftBank eventually went for an IPO.

All said, reports of Intel being acquired have popped up quite often over the last six months and among others, Arm Holdings was also said to have considered buying the company’s Products segment. So far, none of these have materialized and it remains to be seen whether Intel which was once the dominant chipmaker globally is acquired – either in whole or in parts.

For now, though, Intel stock continues to rally and is up over 2% in US premarket price action today.