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As the fluidity around a possible US government stake in Intel has declined in recent days with the advent of much more clarity as to how a possible transaction would be structured, Wall Street analysts are beginning to nibble at the conundrum that this idiosyncratic development poses to Intel's bottom line.
To wit, BofA has now reiterated its 'Neutral' rating and a $25 stock price target for Intel, opining that the stock would likely remain "range-bound until there is clarity around the company’s manufacturing progress, especially 18A process yields and external customer engagement/validation."
The Wall Street player surmised that the US government is likely to acquire an $11 billion stake in Intel by converting the $7.9 billion CHIPS Act grant and the supplemental $3 billion grant under the Pentagon's Secure Enclave program into non-voting equity.
Critically, BofA notes that $11 billion are sufficient to acquire a 10 percent stake in Intel, which aligns with recent comments by the US Treasury Secretary, Scott Bessent.
BofA believes that this situation does entail a critical windfall for Intel by promoting its "U.S.-based manufacturing as a way for new and existing fabless customers to expand their made-in-the-U.S. presence."
In fact, SoftBank appears to have reached the same conclusion as it recently pledged to invest $2 billion in Intel to gain exposure to "semiconductor innovation in the United States."
However, BofA believes this opportunity for Intel also comes with a few hefty drawbacks, including a “10% dilution of existing common shareholders without any additional near-term benefits,” renewed pressure to deliver on critical projects such as Intel's much-delayed Ohio fab, and “likely higher scrutiny of/pushback from customers in China that accounted for ~29% of INTC total sales in FY24.”
Of course, as we noted earlier this week, the Trump administration is also now looking to convert into equity the CHIPS Act grants earmarked for Micron, Samsung, and TSMC, especially as actual cash disbursements of these grants have been minimal at best so far.
As we had noted at the time, with the Trump administration seemingly intent on divvying up the US government patronage among the who's who of the chip fabrication world, much of the unique advantages that were previously expected to accrue to Intel alone could now stand negated.
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