This is not investment advice. The author does not hold any positions in the stocks mentioned herein.
Intel Corporation’s stock price might have the potential to reach $40 per share, as suggested by investment bank UBS. This speculation follows a 4% increase in premarket trading, ignited by SoftBank’s announcement of a $2 billion investment, acquiring Intel common stock. Amid ongoing efforts to revitalize its operations under new CEO Lip-Bu Tan, Intel remains a focal point in the technology sector.
Valuation Challenges for Intel Due to Semiconductor Co-Investment Programs (SCIPs)
Last year, Intel announced its involvement in a Semiconductor Co-Investment Program with Apollo Global Management for its Fab 34 facility in Ireland. This site will utilize the Intel 4 and Intel 3 manufacturing technologies, and as part of this SCIP, Intel ceded a 49% ownership stake for $11 billion.
This SCIP in Ireland marked Intel’s second such venture, following its initial SCIP agreement in 2022 under the leadership of CEO Pat Gelsinger, where it partnered with Brookfield Asset Management to invest $30 billion in its Ocotillo facility located in Arizona.
Under the terms of the Ireland SCIP, Intel is obligated to acquire manufactured wafers from the joint venture. In a recent statement, the company indicated that though the net income from the joint venture attributable to non-controlling interests would be limited initially, it is expected to grow as the facility reaches full production capacity.
Currently trading just below $26 in premarket, UBS expresses a cautious outlook on Intel’s stock, projecting limited potential for growth due to depressed earnings. Their latest analysis maintains a Neutral rating with a price target set at $25 while noting the company’s book value stands at approximately $17 to $18 per share. This suggests that if Intel can cut costs effectively, it may reach a cash flow breakeven.
However, UBS’s report points out that the SCIPs in Arizona and Ireland significantly decrease Intel’s earnings capabilities. The bank explains, “We have maintained a Neutral stance because the lack of earnings per share power at the aggregate company level limits potential price appreciation beyond the mid-$20 range.”This perspective stems from the understanding that substantial portions of incremental operating profits will be allocated as non-controlling interests to Brookfield and Apollo from these SCIP agreements.
Despite these challenges, UBS believes that if Intel’s manufacturing assets and overall business units are valued effectively, the stock could achieve a valuation of $40 per share. This optimism is rooted in comparative analyses with global foundry counterparts, suggesting that if Intel’s manufacturing capacity were valued similarly, it could lead to significant stock appreciation.
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