We maintain our fair value estimate of $21 per share for no-moat Intel INTC, even though shares have appreciated in recent days, based on a variety of reports associated with a potential breakup of the business, including a potential partnership with competitor Taiwan Semiconductor Manufacturing TSM. Our valuation is based on a discounted cash flow estimate for a combined Intel, but it also effectively equates to a reasonable valuation for the chip design business while assigning no value to the manufacturing footprint, which is costly to update and maintain, is depreciating rapidly, and may lose business with its best customer (Intel’s chip design business).
In our opinion, the best-case scenario for Intel investors is a spinoff of design with some government bailout or cash infusion for foundry. Shares appear a little overvalued, especially if no deal comes to fruition.
TSMC’s initial public comments were not enthusiastic about ownership of Intel’s fabs, and we suspect the firm inherently wants to control its manufacturing technologies. However, threats of tariffs on chips manufactured in Taiwan will likely change the economic calculus. It’s possible that an investment in Intel’s fabs, in combination with similar investments by TSMC’s key customers, might be a questionable investment but perhaps the right one if it can keep tariffs off the table.
Our best estimation is that Intel’s current manufacturing expertise (including Intel 18A) will be used for Intel products, while TSMC and its customers will take over some of these existing and future fabs to run US-based manufacturing. We believe that the percentage of future production at Intel’s fabs will depend not only on technological expertise, but even more on how geopolitics tip the scales of US/Taiwanese manufacturing.
Intel Stock vs. Morningstar Fair Value Estimate
undefined
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
