Intel's $8.5B grant helps, but 'Taiwan Semi will still lead': Analyst

Wed, Mar 20, 2024, 2:41 PM

Though Zino acknowledges Intel's competitive advantage as a manufacturer outside Asia, investors may need to see more for the stock to move the needle: "That 8.5 billion is going to help, but at the end of the day they will need to continue to essentially utilize all their cash flow that they're generating from their core business into continuing to kind of build this foundry expansion initiative out there. So as we look here over the next couple of years, we do expect them to potentially be a number two our three player on the foundry side of things where Taiwan Semi (TSM) will continue to lead."

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Editor's note: This article was written by Nicholas Jacobino

Video Transcript

JULIE HYMAN: It's time to take a pause from the Fed and turn to one of the day's trending tickers. As we approach the closing bell on Wall Street, we are watching shares of Intel. Now the shares are only up about a quarter of a percent, but we got the news today that the US will provide the company up to $8.5 billion for chip manufacturing as part of the CHIPS and Sciences Act.

CEO Pat Gelsinger saying this is a defining moment as the US and Intel work to power the next chapter of American semiconductor innovation. The company also said it might tap into more money in terms of tax incentives and loans. Here with more on where this places Intel and the competitive semis landscape, let's bring in CFRA Research Senior Equity Analyst Angelo Zino. Angelo-- I can't even talk after the Fed-- good to see you. Thank you so much for being here.

So, you know, we broadly expected that Intel was going to get one of these grants, right? So what now in terms of how this affects the investable case for the company?

ANGELO ZINO: Yeah. So, no, thanks for having me, Julie. And listen, you look at how much they received here, about 8.5 billion. And my guess is the stock isn't moving much pretty much, because it was in line with where I think we anticipated and where most people out there anticipated, at about 8 to 10 billion or so. Maybe some others were maybe even hoping for a little bit more.

But that said, this is a company that's going to spend in excess of $100 billion in terms of CapEx spend, in terms of expanding and building their foundry business. We saw-- we saw them spend north of $20 billion in each of the last two years. We expect them to spend north of $20 billion this year and each of the next two years.

So this is a company spending massively. That 8.5 billion is going to help. But at the end of the day, I mean, they're going to need to continue to essentially utilize all their cash flow that they're generating from their core business into continuing to build this foundry expansion initiative out there. So as we kind of look here over the next couple of years, we do expect them to potentially be a number two or three player on the foundry side of things, where Taiwan Semi will continue to lead.

But listen, what everyone's hoping for and looking for right now if you're an investor is you're looking for more wins from a customer perspective. I think they've got total lifetime deal value was announced about a month ago of about $15 billion or so. That's not much out there. So we need to see more in terms of the order side of things from Intel.

JOSH LIPTON: Angelo, you look at Pat Gelsinger, who's been CEO there now for three years, he came in with this turnaround plan, big turnaround plan, focus on design, on manufacturing. He said from the beginning, you know, Angelo, he said, he thought it would take about five years. So we're halfway through. You know, as just a financial analyst covering the company, Angelo, I'm curious what grade you give Gelsinger so far. What do you make of his performance?

ANGELO ZINO: Yeah. I mean, listen, I think he's been given a very, very difficult hand, right? I think he's done the most he could with it. I think he's making all the right moves out there. This isn't a company that's necessarily going to be a winner on the AI side of things, but I do think they're kind of-- where they do hold a competitive advantage relative to others is kind of their manufacturing presence.

So being able to see some of the geopolitical pressures out there the need to have another player out there outside of Asia, I think, is the right move. And I think, ultimately, they are going to win a lot of business. The reason we've had a hold recommendation over the last three years is because we knew this was going to be a five-year-plus plan. And as a result, if you're an investor out there, the opportunity cost of having or owning Intel relative to essentially any other company in the semiconductor industry, especially some of these AI-oriented companies, like an Nvidia or AMD, is absolutely huge.

So we give him an A-minus, let's say. But at the end of the day, he was given a very difficult hand. And it's not necessarily his fault while you haven't-- you know, that you haven't seen the capital appreciation in terms of the stock performance.

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