By Tae Kim

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Mixed Picture. Hi everyone. Intel shares have surged over the past week on the Trump administration's promise to support domestic chip manufacturing and reports that semiconductor companies are weighing options to purchase parts of Intel.

Upon closer examination of the developments, investors should be cautious. The likelihood of any transformative deals in the near term is low, and not much has changed regarding Intel's challenges. It may be wise for investors to not chase the stock.

The rally started early last week after Vice President JD Vance vowed more chips would be made in the U.S. during his speech at an AI conference in France. Intel stock gained further steam on reports from Bloomberg and The Wall Street Journal that Taiwan Semiconductor Manufacturing was considering taking a stake in Intel's chip factories, while Broadcom was looking at buying Intel's product business. All told, Intel stock rose by nearly 40% over five trading sessions through Tuesday.

But the flurry of news reports at times contradicted each other, with one saying the Trump administration raised the idea of TSMC taking a controlling stake in Intel's chip factories, while another citing a White House official saying Trump would not likely support such a deal. The most important thing is the common thread of all the reporting included phrases like "very early stages," "informally discussed," and no formalized structure. It is clear the discussions aren't advanced. Intel and TSMC declined to comment on the reports. The White House and Broadcom didn't respond to a request for comment.

Speculation about a major Intel deal is nothing new. Last fall, there were reports of Qualcomm approaching Intel about a takeover. Nothing has happened since.

The fact is the prospects for a transformative Intel deal still face two primary challenges that will be difficult to overcome.

First, any major transaction for a purchase of Intel's product group would need approval from global regulators. China blocked a much smaller $5 billion acquisition of Israel's Tower Semiconductor in 2023, suggesting the Asian country isn't keen on any acquisition that would help the U.S. chipmaking industry. It is unclear how China would then be amenable to Broadcom purchasing Intel's product business.

Second, there isn't an easy way to separate Intel's chip manufacturing operations. In 2024, Intel Foundry generated $17.5 billion in revenue, down 7% versus the prior year, while losing $13.4 billion. Financially, it makes little sense for an external buyer to purchase a financial black hole with massive losses that isn't viable on a stand-alone basis. It also doesn't help sentiment about Intel's foundry road map when Michelle Johnston Holthaus, interim co-CEO of Intel and CEO of Intel Products, repeatedly reiterates she would potentially use TSMC for data center CPUs in the future if it "made sense."

All this comes as Intel still doesn't have a permanent CEO after Pat Gelsinger retired last December. Intel would be better served finding a competent leader with technical expertise to figure out a turnaround strategy and stabilize the business. The chip maker shouldn't discuss selling itself for parts while trying to find a quality CEO, especially when a deal may not even be possible.

For investors, it may be prudent to take some gains. Waiting for something that may not happen could prove disappointing.

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Write to Tae Kim at tae.kim@barrons.com or follow him on X at @firstadopter.

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February 19, 2025 13:10 ET (18:10 GMT)

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