INTEL shares are on track for their biggest one-week gain on record, as unconfirmed discussions about a partnership with a key rival provide hope for a turnaround after an extended period of weakness.
The chipmaker has risen as much as 32 per cent this week, which would represent its strongest such jump in its more-than-40-year history, according to Bloomberg data that goes back to 1982. However, it fell 4.2 per cent on Friday (Feb 14) morning, reducing the weekly gain to 21 per cent, its biggest since March 2020.
The recent gain has only taken shares to their highest since December, and has done little to offset last year’s 60 per cent collapse.
Much of the gain came on reports that the US government could potentially get involved in a plan involving both Intel and Taiwan Semiconductor Manufacturing Company (TSMC).
TSMC is the largest provider of outsourced chip production serving companies such as Apple, Nvidia and Advanced Micro Devices. It’s advances in manufacturing – which have surpassed Intel – have allowed its customers to take market share gains from the American company.
“TSMC would send engineers to Intel’s 3nm/2nm fab, applying the company’s know-how to insure that fab and subsequent manufacturing projects from Intel become viable,” wrote Baird analyst Tristan Gerra, who cited discussions from the Asia supply chain. The fabrication plant “could be spun off into a new entity jointly owned by TSMC and Intel, and run by TSMC,” with the entity receiving funding from the US Chips Act.
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Daniel Newman, chief executive officer of The Futurum Group, said that “the idea of some kind of partnership is very bullish”, although he stressed it was not confirmed.
“I think a lot of talks are happening, but I do not have confidence in every rumour. Still, the stock is so battered down that people are looking for a catalyst.”
He noted the stock is trading near book value, suggesting “deep value here, though it comes with considerable risk because the turnaround is not done by any means. Still, people entering here are making a small bet at a low valuation that maybe a partnership comes to fruition, maybe it gets a CEO who changes the calculus, or maybe the worst is behind it.”
Though it is a longtime market leader in the semiconductor sector, Intel has struggled for years, especially as the industry’s focus turned to artificial intelligence (AI) accelerator chips, where Intel has not been able to produce a viable alternative to Nvidia. It has also lost market share to Advanced Micro Devices and TSMC. An ambitious turnaround strategy – based on an expensive spending plan designed to return its manufacturing and products to industry prominence – has failed to show much progress.
Chief executive officer Pat Gelsinger, who spearheaded the strategy, was forced out in December, and the company’s chief financial officer has said a potential break up of the company is an open question. There have been reports that it is an acquisition target, though analysts say it is unlikely that the company will be bought wholesale. Qualcomm approached the company about potentially acquiring it, although Qualcomm’s interest subsequently cooled, Bloomberg reported in November.
Last month, Intel gave a disappointing revenue forecast.
Against this backdrop, the prospect of a joint venture with TSMC spurred optimism, though analysts covering both TSMC and Intel questioned the viability of a deal. Citi analyst Christopher Danely said he viewed “the success of this type of arrangement as unlikely”.
However, Intel could be a potential beneficiary of the Trump administration’s trade policies and domestic manufacturing priorities. Earlier this week, Vice-President JD Vance said the administration will make sure the most sophisticated AI hardware is made in the US, echoing a focus of the Biden administration, which signed the 2022 Chips and Science Act, designed to boost domestic chip manufacturing. On Thursday, Reuters reported that the White House is seeking to renegotiate awards related to the act.
“There are a limited number of players who can make AI chips here, and of them, Intel is the only US company,” said Hendi Susanto, portfolio manager at Gabelli Funds. “If you put Intel and TSMC together, that could create a firebolt to manufacture AI chips.”
He added that the prospect was only speculation, and that “regardless of what happens, Intel is a multi-year story. Its challenges are far from over, and there is no shortcut to fixing it.” BLOOMBERG
