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Chip Foundry Ambitions are a Positive for Intel Stock (NASDAQ:INTC)
Stock Analysis & Ideas

Chip Foundry Ambitions are a Positive for Intel Stock (NASDAQ:INTC)

Story Highlights

Intel stock fell despite the company taking proactive steps toward establishing itself as a microchip manufacturer of international scope. It’s a bold new direction for Intel, but the reward-to-risk profile looks favorable for INTC stock.

Intel (NASDAQ:INTC) has ambitions to fabricate semiconductors in multiple regions of the world. That’s a positive for INTC stock, as building a chip foundry in Germany, Israel, Poland, and/or other countries could provide ongoing revenue streams for the company. So, I am bullish on Intel stock even though the market brought the share price down today.

Intel has been a giant American microprocessor manufacturer for many years. However, building one or more foundries to create microchips from scratch is a challenging endeavor that only a handful of companies attempt.

Not only that, but Intel is apparently looking outside of its home country to expand its operations. The market doesn’t seem to be bullish on this right now, but in time, anyone betting against Intel will likely regret their skeptical attitude.

Intel Gets Smaller in Order to Grow Bigger

Jumping headfirst into chip fabrication is a daring move, and it comes with risks. For one thing, it means that Intel will have to compete head-to-head with the likes of Taiwan Semiconductor (NYSE:TSM), a gigantic company that everyone seems to favor nowadays. Furthermore, Intel will need to raise a lot of capital in order to build one or more chip foundries.

I suspect that INTC stock went down today because the market is coming to grips with the fact that Intel will have to compete against Taiwan Semiconductor. Without a doubt, Intel’s path to success will be treacherous at times. Yet, branching in this new direction could finally put Intel back on track after the company lost a lot of market share to other chipmakers, especially Advanced Micro Devices (NASDAQ:AMD).

As far as capital-raising goes, Intel is taking action right now, as the company is selling roughly 20% of its stake in its IMS Nanofabrication business to Bain Capital (NYSE:BCSF). Reportedly, Intel stands to receive around $4.3 billion from this transaction.

According to Intel (via Reuters), IMS Nanofabrication has already “delivered a significant return on investment.” So, it makes sense for Intel to take its chips off the table (so to speak) and move on to its future-facing endeavors, which seem to involve building chip foundries in multiple locations.

I’m certainly not suggesting that Intel will only generate significant revenue from microchip fabrication in newly built factories. Indeed, analysts with Morgan Stanley (NYSE:MS) note that Intel has material opportunities in artificial intelligence (AI), which Intel’s legacy server business can continue to serve as businesses’ cloud budgets adjust to higher levels of AI-related spending. With this factor in mind, the Morgan Stanley analysts reiterated an Equal Weight rating on INTC stock while raising their price target on the shares from $31 to $38.

Intel Prepares to Build New International Chip Foundries

Where will Intel establish its foundry to create semiconductors from scratch? The answer isn’t just one place, as Intel reportedly seeks to plant its proverbial flag in multiple countries.

First of all, Intel selected an area near Wrocław in Poland as the site of a semiconductor assembly and testing facility. This site probably won’t be up and running until 2027, but apparently, Intel is ready to commence the design and planning stages for the facility immediately.

The next stop on our itinerary is Israel, where Intel reportedly plans to invest around $25 billion into a new chipmaking factory. Again, we should expect the site to be up and running in 2027. This report seems to be fairly well confirmed, as it comes from an announcement from Israeli Prime Minister Benjamin Netanyahu.

Finally, here’s the one that people are buzzing about. A still-fresh report states that Intel has earned a €10 billion (approximately $10.9 billion) subsidy deal with the German government. This will be for a new semiconductor plant in the German city of Magdeburg. Clearly, Germany is serious about establishing a major presence in the global chipmaking industry, and so is Intel, for that matter.

Is INTC Stock a Buy, According to Analysts?

Turning to Wall Street, INTC stock comes in as a Hold based on five Buys, 17 Holds, and four Sell ratings. The average Intel stock price target is $31.34, implying 4.7% downside potential.

Conclusion: Should You Consider Intel Stock?

There’s certainly no guarantee that Intel will succeed with its new business model, which will involve establishing one or more chip foundries. The market appears to be in a distressed mood now because Intel will have to compete with Taiwan Semiconductor.

On the other hand, Intel will have the support of the German government and possibly the Israeli government, as well. After tough times in 2021 and 2022, Intel could benefit from a renewed business focus. So, I feel that it’s a great time to consider INTC stock despite the market’s skepticism, as a new and improved Intel could provide outstanding value to its shareholders in the coming years.

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