BofA: Intel Stock Dilution Risks and Chinese Market Pushback Due to US Government Stake

This content does not constitute investment advice. The author does not hold any shares in the mentioned stocks.

Shifting Dynamics Surrounding U. S.Government Involvement in Intel

The recent clarity regarding a potential U. S.government investment in Intel has sparked renewed interest among Wall Street analysts. They are now evaluating the implications of this unique development on Intel’s financial performance.

BofA’s Current Assessment of Intel’s Outlook

Bank of America (BofA) has maintained a ‘Neutral’ rating for Intel, setting a price target of $25 per share. Analysts suggest that the stock is likely to remain “range-bound” until there is more definitive insight into the company’s manufacturing advancements, particularly concerning the 18A process yields and their external client engagements.

Details of the Proposed Investment

Insights indicate that the U. S.government might acquire an $11 billion stake in Intel by converting the existing $7.9 billion CHIPS Act grant, along with an additional $3 billion from the Pentagon’s Secure Enclave program, into non-voting equity. This potential transaction could enable the government to secure approximately a 10% ownership in the company, a projection that resonates with recent statements from U. S.Treasury Secretary Scott Bessent.

Opportunities Versus Challenges for Intel

BofA posits that this government investment might bolster Intel’s manufacturing capabilities, making it a preferred choice for both new and established fabless companies looking to enhance their U. S.manufacturing footprint. Notably, SoftBank has echoed this sentiment, recently committing $2 billion to Intel, projecting growth in U. S.semiconductor innovation.

However, this opportunity is not without its challenges. BofA warns of significant drawbacks, including a potential 10% dilution for current shareholders, lack of immediate benefits from the investment, and intensified pressure to execute key projects like the long-overdue Ohio fabrication plant. Additionally, there may be increased scrutiny from clients in China, who represented about 29% of Intel’s total sales in FY24.

Distribution of Government Grants and Its Implications

The current administration’s strategy also involves converting CHIPS Act grants intended for companies such as Micron, Samsung, and TSMC into equity. This could diminish the unique advantages previously anticipated for Intel, as the competitive landscape for government support among leading semiconductor firms intensifies.

Source & Images