Exploring the Potential Partnership Between Intel and TSMC

Intel (INTC) saw a boost in its stock price on Wednesday, mainly due to some intriguing insights from investment banker R.W. Baird.

Analyst Tristan Gerra reported that there are discussions circulating through the Asian supply chain about a potential collaboration between Intel and its significant competitor in the semiconductor sector, Taiwan Semiconductor Manufacturing Company (TSMC). Although the specific details remain limited, the idea of these two giants coming together has caught the attention of investors. As a result, Intel's stock rose by 3% by 11:15 a.m. ET.

Current Insights on Intel and TSMC

At this moment, the discussions appear to be more speculative than concrete, so it's essential for investors to temper their enthusiasm. With that said, Gerra has shared some intriguing possibilities:

The U.S. government is reportedly urging Intel to consider spinning off its semiconductor fabrication division to create a joint venture with TSMC. This partnership would involve TSMC contributing some of its skilled engineers and technical expertise to this new venture, which would focus on advanced chip manufacturing, potentially reaching 3-nanometer and even 2-nanometer processes within the United States. This joint venture could produce chips for Intel, TSMC, and various fabless semiconductor firms.

To further entice this partnership, funding from the CHIPS Act could be applied to support the operations of the new endeavor, according to reports.

Evaluating Intel Stock

While the possibilities presented are exciting, Gerra advises caution and maintains a neutral rating on Intel stock until more definitive information is available. Currently, this cautious approach seems prudent.

Intel has faced significant financial challenges, reporting net losses of $18.8 billion over the past year. Experts do not predict a return to profitability under generally accepted accounting principles (GAAP) until at least 2026. Furthermore, with a projected earnings per share of $0.29 for 2026, Intel's stock trades at an enormous price-to-earnings ratio of 74 times its anticipated earnings.

While Intel's stock may present a buying opportunity in the future, it does not appear to be the right time for such an investment.

Rich Smith does not hold any positions in the stocks mentioned. The Motley Fool has positions in and recommends Intel and Taiwan Semiconductor Manufacturing. The Motley Fool suggests the following options: short February 2025 $27 calls on Intel.

Partnership, Stocks, Semiconductors