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Chipmaker Intel's shares could be worth $40 if its chip manufacturing business is valued in comparison to global peers, believes investment bank UBS. Intel's shares have gained 4% in premarket trading after Japanese investment conglomerate Softbank announced a $2 billion investment in the firm yesterday by purchasing the firm's common stock. Intel has been at the center of considerable attention in the technology industry as it battles to turn around its business after new CEO Lip-Bu Tan took over the helm earlier this year.
Intel's Valuation Is Hampered By Semiconductor Co-Investment Programs (SCIPs) With Asset Managers For Its Arizona
& Ireland Operations, Says Investment Bank
Intel made a major announcement last year when it announced that it was entering a SCIP with asset manager Apollo for its Fab 34 in Ireland. This facility is designed to manufacture products with the Intel 4 and Intel 3 process technology families, and through the Semiconductor Co-Investment Program (SCIP) with Apollo, Intel sold a 49% stake in the fab for an $11 billion price tag.
The Ireland SCIP came two years after Intel's first such deal under the Gelsinger-led board's 'Smart Capital' strategy in 2022. This deal, the Arizona SCIP, saw Intel partner with Brookfield Asset Management to jointly invest $30 billion in its Ocotillo, Arizona, facility.
The specifics of the Ireland SCIP required Intel to purchase manufactured wafers from the entity, and as part of its release, Intel warned that it "expects to consolidate results of the joint venture through net income and account for income attributable to the 49% ownership interest in net income (loss) attributable to non-controlling interests." The firm added that it "expects net income attributable to such non-controlling interest to be limited in the first two years but to increase thereafter as the factory ramps to full capacity."
While Intel's stock is trading a hairline below $26 in premarket trading, investment bank UBS believes there's limited upside due to depressed earnings power. The bank responds to "investor questions about where the stock could go in an upside, in a fresh analyst note which reiterates a Neutral rating and a $25 share price target for Intel, scenario."
It outlines that Intel is protected from downside through its book value, which sits at roughly $17 to $18 per share, provided that the firm can "cut costs enough to sustainably reach cash flow breakeven." However, the bank then notes the Arizona and Ireland SCIPs, as it points out that the agreements significantly lower Intel's earnings power.
"We have remained Neutral though because we have seen upside limited by a lack of EPS power at the combined company level to sufficiently push the stock much higher than the mid $20 range," says UBS. The bank adds that the Neutral rating is in part "because INTC is going to have to give away (as non controlling interest) a significant portion of incremental OP dollars to Brookfield and Apollo for SCIP agreements in Ireland and Arizona."
However, the bank adds that Intel could see upside to $40 per share if its manufacturing assets and all other business 'pieces' are materially valued. Specifically for the manufacturing assets, the stock could see upside if they were independently valued "based on how other global foundry comps are valued per installed wafer of capacity," says the investment bank.
About the author: Ramish is a seasoned technology writer and editor with more than a decade of experience. He specializes in semiconductor fabrication and market analysis. With a background in finance and supply chain management - via his bachelors in Finance and a micromasters in supply chain management from MIT - Ramish combines financial rigor with deep industry insight to deliver accurate and authoritative coverage.
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