New chip-supply deals and cheerleading from President Trump are giving Intel momentum it hasn’t had in years. But the recent jump in the company’s stock belies years of technical missteps that investors shouldn’t be quick to forget.
Excitement about Intel began building last August, when Trump took money that had been committed to the company as part of a Biden-era U.S. manufacturing push and converted it into equity. That gave the U.S. government a 10% stake—and sent Intel’s stock skyward.
The stake also made it apparent that doing business with Intel could be politically beneficial. Further announcements followed, including a promise from Nvidia to invest $5 billion and work with Intel on central processing unit designs. Google joined the party in April with a collaboration on CPUs and AI chips. Then Elon Musk tapped Intel to help with his mega-chip fab project. And Trump last week announced that Apple had agreed to work with Intel on designing and making chips.
All this commotion has sent Intel’s stock up more than 550% in the past year, pushing its market valuation to over $700 billion. That is quite a run for a company mired for many years in what former Chief Executive Pat Gelsinger once described as a “mud hole.”
Intel has made some progress in getting out of that hole under CEO Lip-Bu Tan, who took the helm last year. But it is far from clear that the technical struggles that have dogged the company over the past decade are behind it.
Intel in recent months has started to ship chips made using its cutting-edge “18A” manufacturing process, which began development under Gelsinger. That was a major milestone for Intel. It should also help Intel more closely compete with contract chip-making giant Taiwan Semiconductor Manufacturing Co. and its customers, which include Nvidia and Intel rival Advanced Micro Devices.
It is an unresolved question, though, whether Intel can make its advanced chips make financial sense.
Chip makers typically start making new generations of chips with ever-tinier transistors by testing them in labs, then transferring production to factories where they can be made in much larger quantities.
Along the way, manufacturers try to improve their yields, or the number of working chips they get from a wafer of silicon. If they can’t manufacture at high volumes with good yields—how good depends on the size of the chips and how advanced the manufacturing process is—it makes less financial sense to produce them.
And that is the pickle Intel is in. The company won’t say what its yields are for its 18A chips, but it is clear that they aren’t yet a financial home run.
Chief Financial Officer David Zinsner said at an analyst conference this month that the yields “aren’t to the level that they’re at least neutral, if not, hopefully over time accretive to gross margins of the total company.” In other words, they aren’t yet helping Intel financially.
It is also far from clear whether Intel’s agreements with Nvidia, Google or Apple will be barn burners in business terms. If Intel can’t make the chips those customers want at yields that make financial sense, it is hard to imagine those deals amounting to much sustained new revenue or profit.
Working in Intel’s favor is that many customers of TSMC want alternative suppliers. Only Intel and Samsung Electronics have a real shot at playing that role. But the world’s biggest chip designers have quietly been exploring using Intel’s factories for years without many tangible results. The Intel division that houses those factories, which mostly make chips that Intel itself designs, reported about $5.4 billion of revenue in the first quarter, with a $2.4 billion operational loss.
Intel executives say they are making good progress on manufacturing. A better-performing version of the 18A manufacturing process has entered risk production, the company said last week, meaning it is a step closer to high-volume manufacturing. The next-generation 14A process is on track, executives also say.
It is tempting to believe all of that. Bank of America analyst Vivek Arya earlier this month double-upgraded Intel from “underperform” to “buy” on the basis that it was attracting new external customers, advancing its chip-making technology and benefiting hugely from the shift within AI toward digital agents. And indeed, AI agents use more CPU computing power, playing into Intel’s strength as a major supplier of those chips.
But it is also impossible to ignore Intel’s record of broken promises. Back in 2015, then-Chief Executive Brian Krzanich said Intel would be producing 10-nanometer chips—then the most futuristic in the world—within the following two years.
Those chips didn’t end up arriving in high volumes until 2019, allowing TSMC to take the lead over Intel in cutting-edge manufacturing—a lead it still holds. Intel’s subsequent 7-nanometer chips were also delayed, compounding the company’s troubles.
These days, investing in Intel is a momentum play. The hope is that Trump will help drum up business for a company increasingly playing the role of a U.S. national chip-making champion. Whether Intel can step up its manufacturing prowess enough to make those orders pay is another matter.
Write to Asa Fitch at asa.fitch@wsj.com