Without This Factor, Intel's Worst Stock Drop in Decades May Have Been Even Steeper

Intel Corp.’s stock experienced its most significant daily drop in decades, plummeting 26%, which erased more than $30 billion from the company’s market value.

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The company is currently implementing a $10 billion cost-cutting initiative that includes suspending dividends, widespread layoffs, and significant reductions in capital expenses. These measures aim to address the company's cash burn and severe margin pressures.

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These issues alone would likely cause considerable investor concern. However, Intel's stock decline might have been even more severe if not for a crucial advantage: investors' belief in the company’s long-term viability. This optimism stems from Intel’s position as a domestic chip manufacturer at a time when governments are keen to support local players in the semiconductor industry.

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“In other circumstances, we believe we would now be having ‘going concern’ conversations with clients,” wrote Stacy Rasgon of Bernstein in a note to clients. “To that end (and perhaps the one positive), subsidies and partner contributions, combined with spending cuts and dividend suspension, look set to add approximately $40 billion of incremental cash to Intel’s balance sheet through the end of 2025. This suggests that Intel will survive (in some form) to continue the fight.”

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The subsidies are particularly noteworthy. Earlier this year, Intel secured a deal with the U.S. government that provided the company with $8.5 billion in direct funding and $11 billion in loans through the Chips Act. This government program aims to strengthen the U.S.’s position in chip manufacturing, reflecting a serious commitment to helping domestic players compete in this critical industry.

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The semiconductor supply chain is global, heavily reliant on Taiwan, home to Taiwan Semiconductor Manufacturing Co. Ltd. (TSM). Given the essential role semiconductors play and the volatile nature of geopolitics, governments, including the U.S., are prioritizing domestic chip production capabilities.

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Intel occupies a particularly crucial position for the U.S. due to its in-house chip manufacturing capabilities. “Our country and [government] cannot afford to let [Intel] founder and really struggle long term,” noted Mizuho analyst Jordan Klein in a client note.

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The U.S. has several homegrown companies that contribute to the semiconductor industry through silicon development, and there are also key semiconductor-equipment companies based in the U.S. However, Intel stands out as the U.S. government “has a vested interest in [Intel] being a real player in foundry and winning at the leading edge,” Klein wrote. Intel is “too important of a long-term strategic asset.”

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A few weeks ago, investor concerns about geopolitics affecting the semiconductor supply chain resurfaced. Former President Donald Trump’s comments about Taiwan taking over the U.S.’s chip business led to a sharp decline in chip stocks. Interestingly, Intel’s stock remained unaffected, highlighting how investors view the company as a potential beneficiary if nationalism gains influence in the industry.

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Intel’s situation is somewhat reminiscent of Boeing Co. (BA), another major domestic company facing execution issues that have impacted its financial performance. While Boeing is not a financial institution like the too-big-to-fail banks, it operates as the domestic counterpart in a duopoly with Airbus and holds a vital position in the defense and aerospace markets.

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Boeing is an iconic business and a major employer, with the U.S. government likely having a vested interest in its success, similar to its interest in Intel.

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