Intel (NASDAQ: INTC) stock is getting a lift Wednesday from some interesting commentary out of investment banker R.W. Baird.
Writing about rumors out of Asia Wednesday morning, Baird analyst Tristan Gerra said there are "discussions from the Asia supply chain" regarding a potential tie-up between Intel and one of its biggest rivals in the semiconductor industry, Taiwan Semiconductor Manufacturing Company (NYSE: TSM). Details are scanty at this point, but investors seem to like the idea of the two forging closer ties, and as of 11:15 a.m. ET, Intel stock was up 3%.
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What we know about Intel and TSMC
At this point, the rumors are just that, and probably shouldn't be relied upon too much. Which is to say: Don't go getting irrationally exuberant over this. But with that caveat made, here's what Baird says is happening:
The U.S. government is trying to convince Intel to spin off its semiconductor fabrication business, which would then become a joint venture between Intel and TSMC. Then, TSMC would lend some of its semiconductor engineers and expertise to the new joint venture, helping it make the process leap to manufacturing advanced 3-nanometer and even 2-nanometer chips in the U.S. This JV would be able to manufacture Intel chips, TSMC chips, and chips from other fabless semiconductor companies on contract.
Sweetening the deal further, federal money from the CHIPS Act could be used to subsidize the new venture's operations, reports TheFly.com.
Is Intel stock a sell?
All of this sounds promising, yet Gerra isn't quite ready to call Intel stock a buy based on it. He's maintaining a neutral rating on it until the rumors are confirmed. I think that's smart.
Intel is unprofitable at present, with net losses totaling $18.8 billion over the last 12 months, and it isn't expected to return to GAAP (generally accepted accounting principles) profitability until 2026 at the earliest. Moreover, based on the $0.29 per share that analysts expect it to earn then, the stock trades at a staggering 74 times next year's earnings.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intel and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: short February 2025 $27 calls on Intel. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
