Trump's triumph in the elections brings potential implications for Intel stock investments.
Similar to numerous tech and chip stocks on Wednesday, Intel (-2.12% at INTC) saw its shares surge alongside the broader market gains. The jubilation among investors was palpable following Donald Trump's election victory on Tuesday night, as they anticipated tax cuts and less stringent regulations, which they believed would stimulate corporate investments and profit growth.
But among the corporations that may stand to benefit most from the upcoming administration is Intel, which could reap significant gains from the CHIPS Act and has also been grappling with years of underperformance, culminating in a major restructuring announcement in August.
However, the extent to which Trump will uphold the commitments outlined in the CHIPS Act remains uncertain, as he has publicly slammed the law on several occasions. In a recent conversation with Joe Rogan, he lambasted the deal, stating, "That chip deal is so bad," adding, "We're paying a lot of money to have people build chips, that's not the way." He then advocated for tariffs as an alternate funding source for chip manufacturing.
House Speaker Mike Johnson speculated that a Trump administration would likely scrap the CHIPS Act, only to later backtrack on his remarks.
Breakdown of the CHIPS Act
The CHIPS and Science Act earmarks $52.7 billion for American semiconductor activities, with $39 billion allocated for manufacturing incentives. The legislation seeks to bolster the U.S. semiconductor industry's resilience and ensure a steady supply of chips, particularly in the face of mounting pressure on Taiwan, the cornerstone of the global semiconductor manufacturing sector, from China and energy constraints.
Indisputably, Intel, one of the few American firms that both designs and manufactures chips, is poised to gain the most from the CHIPS Act. The company, despite its recent setbacks, is generally regarded as an industry leader.
In March, Intel and the Biden administration inked a non-binding agreement for Intel to receive $8.5 billion in grant money for new factories, with the potential for an additional $11 billion in federal loans, as well as tax relief. This agreement forms part of Intel's plans to invest over $100 billion in the United States over the next five years, with a focus on building new plants.
Intel and the CHIPS Act
Intel established Intel Foundry Services in 2021, aiming to use its factories to manufacture chips for other semiconductor companies. The venture has incurred significant financial losses thus far, as Intel has yet to expand its customer base and roll out its 18A process.
However, Intel CEO Pat Gelsinger unveiled an ambitious target of making the foundry business the second-largest in the world by 2030, with a target of 30% adjusted operating margins. The CHIPS Act could potentially contribute to this strategy, with the $19.5 billion award being announced prior to Intel revealing its goals.
Recently, Gelsinger has expressed frustration over the slow disbursement of funds under the CHIPS Act, and Trump's election could further complicate the situation. Separately, Intel secured $3 billion for military chips as part of a Secure Enclave grant.
The Future of the CHIPS Act
Since the Trump administration's stance on the CHIPS Act remains speculative, it is difficult to predict its future. There are a few potential scenarios to consider:
- The Biden administration could opt to disburse all funding prior to the Trump administration taking office, although it is unclear if this will happen.
- Speaker Johnson has suggested the possibility of streamlining and enhancing the bill by removing expensive regulatory requirements.
- Trump himself could choose to revamp the CHIPS Act, putting his own stamp on it and positioning it as a key achievement of his second term.
Intel's Potential Acquisition
Beyond the CHIPS Act, the Trump administration could have a significant impact on Intel through a potential buyout or merger. Given the company's challenges and marked decline in valuation, such a move appears increasingly plausible.
According to a recent report, the Commerce Department, in charge of overseeing the CHIPS Act, is contemplating whether Intel should be merged with another chip company due to its growing strategic importance in the supply chain. However, these considerations are deemed "cautionary" at this stage.
In September, media outlets reported that Qualcomm had shown interest in a buyout of Intel, and a Trump administration is believed to be more receptive to mergers and acquisitions than the current one.
In conclusion, while the impact of the Trump administration on Intel remains uncertain, the stock is likely to be influenced by federal policy, taking into account its exposure to the CHIPS Act and potential involvement in acquisition. The initial surge in Intel and its peers' stocks in response to Trump's victory suggests that investors view his triumph as a positive development, providing some reassurance for now.
After expressing criticism towards the CHIPS Act and suggesting tariffs as an alternative funding source, Donald Trump's stance on the legislation remains uncertain, potentially impacting Intel's anticipated gains. Given Intel's plans to invest over $100 billion in the United States, the speed and disbursement of funds under the CHIPS Act are crucial for the company's ambitious foundry business expansion strategy.
