Key Takeaways
- Intel shares fell about 2% on Monday after Elon Musk confirmed talks about TSMC joining Terafab, the Texas chip venture where Intel’s 14A is the only named process.
- A TSMC role would turn Intel’s most visible outside foundry customer into a shared one, and that matters because the stock’s price assumes wins like it.
- Intel traded at about 71 times forward earnings, but outside customers brought its foundry just $293 million of revenue in the second quarter.
- What to watch: whether TSMC signs a formal deal, and Intel’s 14A design kit, due in October.
Intel (INTC) fell about 2% on Monday after Elon Musk confirmed that Taiwan Semiconductor Manufacturing (TSM) could join Terafab. Intel was the first chipmaker to back the Texas venture.
The rest of the chip group barely moved. Advanced Micro Devices (AMD) slipped less than 1%, and Nvidia (NVDA) edged up. This one is all about Intel.
It also hits a stock that has had quite a run. Intel is up 200%+ over the past year, and on Mad Money on Sept. 28, Jim Cramer said CEO Lip-Bu Tan has turned the company “from a has-been into a force to be reckoned with.”
What exactly happened
Terafab is a joint venture between Tesla (TSLA) and SpaceX (SPCX) to make chips for Musk’s companies in Grimes County, Texas. The key facts:
- $16.8 billion committed to the first phase, and up to $119 billion across all phases
- Output reserved for Tesla, SpaceX, and xAI
- Intel joined in April, and its next-generation 14A process is the facility’s only named process technology
On Friday, the Culpium newsletter reported that TSMC is looking at ways to help Terafab run its planned Texas factories. The most likely setup would reportedly have TSMC own and run a new facility, with Terafab as an anchor customer.
On Sunday, Musk confirmed the talks on X:
“Just discussions, but something may come of it.”
TSMC’s Taiwan-listed shares closed up 3% on Monday.
Why Terafab matters so much to Intel
Terafab is Intel’s showcase. Intel’s foundry business makes chips for other companies, and it needs big outside customers to prove it can compete with TSMC. Right now, those customers are scarce: in the second quarter, outside customers brought in just $293 million of revenue. (The foundry booked $5.8 billion in total, nearly all of it from Intel itself, and still lost $2.1 billion.)
If the world’s biggest contract chipmaker shares Terafab, that showcase gets a lot less special. Barron’s called it a “setback” for Intel…which if anything undersells it a bit.
The trouble is that investors are paying up for the foundry story. As D.A. Davidson’s Gil Luria put it on Prof G Markets on Sept. 29: “AMD is trading at 40 times, Intel at 60 times, optical companies at 30, 40 times.” His point is that the market doubts the AI cycle can last for giants like Nvidia, but believes it can for companies like Intel.
By TIKR’s numbers, Intel was even pricier going into the news: about 71 times forward earnings on Oct. 2. That’s above its three-year average of 66 times, and nearly four times its low of about 19 times in August 2024…
(It’s still well below last October’s peak of 173 times, to be fair.)
Analysts expect a big sales recovery to back that up. After three flat years, consensus has revenue climbing to $82.6 billion by 2028, about 56% growth…
Terafab’s factories are still being planned, so I don’t expect the weekend’s news to move these estimates much. The risk is to the multiple: a marquee US customer is a big part of what justifies paying 71 times earnings.
The core chip business didn’t help either. Susquehanna said Monday that Intel likely kept losing CPU share to AMD in both laptops and desktops in the third quarter.
What’s next
Of course, it’s early. Musk called these “just discussions,” and the reported setup has TSMC building its own facility. That leaves room for Intel to keep its role at Terafab.
Even so, I think Monday’s drop is fair (maybe even should have been larger), and this is a real setback. At about 71 times forward earnings, Intel’s price assumes its foundry wins customers like Terafab outright, and a TSMC role dims that halo quite a bit. Nothing is signed yet, though, and a formal TSMC deal or new 14A customers will show how big the hit really is.
So what is Intel stock actually worth?
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
