There was good news for Intel (NASDAQ:INTC) on Wednesday. Against a backdrop of the Biden administration’s attempts to increase the production of semiconductors in the U.S., as part of the CHIPS Act, the semi giant will receive an $8.5 billion grant and is eligible for as much as $11.0 billion in loans. The company also intends to take advantage of the investment tax credit offered by the U.S. Treasury Department, which is anticipated to cover up to 25% of eligible investments exceeding $100 billion over a span of five years.
Citi analyst Christopher Danely thinks there are 3 main objectives behind the grant, noting, “We believe the primary purposes are to help Intel regain process leadership, improve the semiconductor supply chain in the US, and create a world-class foundry.”
Yet, while Danely thinks there’s a “decent chance the first two objectives can be achieved,” he thinks the prospect of Intel becoming a leading-edge foundry is “very low.”
As for the first two objectives, should the company be able to execute on its five nodes in four years manufacturing roadmap, Danely thinks Intel could recapture process leadership. And given its history of operating fabs in the US, Danely also thinks Intel “should be able to improve the US semiconductor supply chain.”
But as far as being a leading-edge foundry is concerned, despite receiving money from the government, Danely thinks it will be “very difficult” for Intel to compete with TSMC.
To this end, Danely rates Intel shares a Neutral, while maintaining a price target of $47.50, indicating the stock could push 12% higher over the coming months. (To watch Danely’s track record, click here)
Deutsche Bank’s Ross Seymore, an analyst ranked in the top 1% of Street pros, thinks the deal should “remove some uncertainty” regarding the stock. That said, it doesn’t really alter the picture as far as his expectations are concerned.
“While we view clarity on the source of funding for INTC as positive, we highlight that much of the financial benefit is already reflected in our current model (e.g. net capex, depreciation, gross margins already contemplate ~30% capital offsets’),” the 5-star analyst explained.
As such, Seymore sticks with a Hold (i.e., Neutral) rating while his $42 price target suggests the shares are fully valued. (To watch Seymore’s track record, click here)
Most other analysts also remain on the fence. Based on a total of 24 Holds, 8 Buys and 4 Sells, the Street’s view is that this stock is a Hold. Going by the $47.05 average target, a year from now, investors will be pocketing returns of ~11%. (See Intel stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
