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Chipmaker Intel’s shares could potentially be worth $40 if its chip manufacturing business is compared to global peers, according to investment bank UBS. The stock gained 4% in premarket trading after Japanese conglomerate Softbank invested $2 billion by purchasing Intel’s common stock. With new CEO Lip-Bu Tan at the helm, Intel has been a focal point of attention as it seeks to revitalize its business.
UBS Suggests ‘Smart Capital’ Could Be a Financial Mistake Pulling Down Share Price
Intel’s ‘Smart Capital’ strategy may be financially flawed and contributing to a lower share price. According to an investment bank report, the SCIPs (Semiconductor Co-Investment Programs) with asset managers for its Arizona and Ireland operations are hampering Intel’s valuation.
Key Points:
– In 2024, Intel entered into a SCIP with Apollo for Fab 34 in Ireland, selling a 49% stake for $11 billion.
– This was followed by an Arizona SCIP in 2022, partnering with Brookfield Asset Management to invest $30 billion in the Ocotillo facility.
Intel’s Specifics:
– The Ireland SCIP required Intel to purchase manufactured wafers from the entity and consolidate results through net income. Intel expects limited non-controlling interest income for the first two years.
– The Arizona SCIP is a significant investment, likely lowering earnings power due to the agreement terms.
UBS’s Analysis:
– Despite trading around $26 in premarket, UBS believes there’s limited upside due to depressed earnings power.
– UBS maintains a Neutral rating with a $25 share price target, citing that Intel must cut costs to reach cash flow breakeven and give away significant portions of incremental operating profit to Brookfield and Apollo for SCIP agreements.
Upside Potential:
– If all manufacturing assets are independently valued based on global foundry comparables, the stock could rise to $40 per share.
– This is contingent on material valuation of Intel’s chip manufacturing business.
