Trump, 18A Make Intel’s Foundry More Valuable Than Ever
Intel (NASDAQ:INTC) stock has declined by over 55% this year and trades at just about $21 per share. While part of the sell-off has come due to Intel’s market share losses in the CPU space and the broader industry pivot toward AI-focused GPU chips for data centers, the bigger issue for Intel has been its foundry business. Intel has invested about $25 billion into the business in each of the last two years and results have been hard to come by. The foundry reported a $7 billion operating loss on $18.9 billion in revenue. That being said, a turnaround is well within sight, in our view. Intel’s next-gen 18A fabrication process technology is almost ready to roll out, and the company also appears to be a key beneficiary of regulatory support under the Trump administration given its strategic importance to U.S. technological independence. See why you should consider selling Nvidia and buying Intel stock.
The Latest 18A Process Node
Intel is betting big on its 18A process, which it considers its most advanced yet, to turn around its foundry business. The process produces chips with technologies including RibbonFET gate-all-around transistors and PowerVia backside power delivery, which are expected to boost performance and power efficiency. The chips using this process will be based on a 1.8-nanometer node size, putting Intel slightly ahead of TSMC’s N2 process which operates at a 2 nm node and is expected to arrive in the second half of 2025. While TSMC claims that its N2 process will outperform Intel’s 18A in some crucial areas, such as SRAM density (enabling it to store more data in a smaller physical area), Intel’s 18A’s backside power delivery gives it a competitive edge with reduced power loss and better thermal performance. Good news on the new chip’s progress, or bad news if delays occur, could increase volatility in the stock. Separately, if you want upside with a smoother ride than an individual stock, consider the High Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.
Intel announced in early August that it had reached critical milestones with chips made using the 18A process, noting that the chip had powered on, booted operating systems, and was operational within Intel. The company expects external customers to tape out (move from design to foundry for manufacturing) their first 18A designs in 2025, with large-scale production to begin thereafter. Intel has secured big contracts with this technology, including with the U.S. Department of Defense for the RAMP-C program, which seeks to bring leading-edge semiconductor technology domestically. Other high-profile customers include Amazon and Microsoft, which intend to design custom chips, including AI accelerators.
Although there have been rumors suggesting that chipmaker Broadcom, which has been testing out Intel’s 18A process, was disappointed with the yields of the new process, this was refuted by Intel’s ex-CEO Pat Gelsinger. Intel says that its process shows defect density figures of 0.4 defects per square centimeter for now, which is only slightly worse than TSMC’s benchmarks of 0.33 defects on its legacy N7 and N5 nodes at comparable stages of development – roughly a year before entering high volume production. Given that the standard for this stage of development is typically below 0.5 defects per square centimeter, it means that Intel could be well within industry standards for advanced nodes and should be adequate for generating usable yields.
President-elect Donald Trump’s emphasis on boosting U.S. manufacturing could work in Intel’s favor, given its sizable domestic fabrication footprint. There’s a possibility that Intel could see considerable regulatory support aimed at boosting domestic chip production. For example, the new administration could look at imposing tariffs that make it more expensive for foreign fabrication companies to produce and export chips to the U.S. A stronger emphasis on domestic production, either through tariffs or via other policies, could drive more business to Intel. Intel’s foundry division – which produces chips for third-party customers – could also see stronger demand, particularly as companies look to rely on U.S. suppliers to avoid potential duties.
Semiconductors are also critical for national security – an area that Trump has consistently emphasized – and Intel’s domestic manufacturing footprint is likely to be crucial as it helps to secure U.S. technological independence. Intel could also see a higher number of contracts awarded to it from the government, being the only American semiconductor player that both designs and fabricates leading-edge logic chips in the U.S. Intel won a $3 billion government contract to expand chip production for the U.S. military a few months ago, and there’s a possibility that this could scale up further under Trump, who boosted military spending over his last term.
Intel’s huge fab capacity and its newest process nodes could help domestic semiconductor designs better secure their supply chains as well. Take Nvidia for example. The GPU titan relies almost exclusively on Taiwan’s TSMC to produce its cutting-edge AI chips. TSMC is based in Taiwan, making production vulnerable to geopolitical tensions with China. Intel, with its U.S.-based manufacturing, would mitigate that risk to a large extent.
The decrease in INTC stock over the last 4-year period has been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for the stock were 6% in 2021, -47% in 2022, and 95% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.
Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could INTC face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months – or will it see a recovery?
Foundry Assets Provide A Backstop To Intel’s Valuation
The semiconductor foundry business is risky given that management must make massive capital investment decisions based on predictions about future technologies several years before the demand for those technologies materializes. While Intel has seen major missteps with its current investment cycle, there’s probably a pretty limited downside for the stock at the moment. Intel’s stock currently trades at less than 1x its book value – essentially the net value of its assets after subtracting liabilities. This means the market is pricing Intel at just the value of its tangible assets while completely discounting its technological know-how in chip manufacturing and design, its increasing importance to national security, and its future potential. This creates an opportunity for investors who see potential beyond the company’s sizable balance sheet. Intel stock also trades at just about 21x its estimated 2025 earnings, which are depressed by its heavy foundry spending and recent market share losses. Earnings are projected at about $1 per share next year, down from close to $2 in 2022 and about $5 in 2021. As demand picks up, we could see a reversal in both earnings as well as Intel’s valuation multiple.
Intel’s new co-CEOs say that the company’s Intel’s foundry business is in the process of being shifted to be a subsidiary, indicating that it could operate independently from the chip-design segment. The executives also indicated that the possibility of separating the foundry business from the rest of the company was an option in the future. This could also help to eventually unlock some value. We value Intel stock at about $27 per share, 30% ahead of the current market price. See our analysis of Intel’s valuation : Expensive or Cheap?
| Returns | Dec 2024 MTD [1] |
2024 YTD [1] |
2017-24 Total [2] |
| INTC Return | -13% | -58% | -30% |
| S&P 500 Return | 1% | 28% | 172% |
| Trefis Reinforced Value Portfolio | -1% | 23% | 816% |
[1] Returns as of 12/13/2024
[2] Cumulative total returns since the end of 2016
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