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Here’s Why You Should Consider Investing in Intel Today

JasonDoiy / iStock.com

JasonDoiy / iStock.com

In 2022, Congress passed the CHIPS Act to promote semiconductor development in the United States, rather than from foreign suppliers. Specifically, the law allocated $39 billion to help reduce U.S. dependence on semiconductor manufacturers from Taiwan and South Korea for chips needed for everything from spy satellites and telecommunications equipment to medical devices and missiles.

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In March 2024, semiconductor giant Intel became the deal’s largest beneficiary, receiving a loan and grant to expand domestic semiconductor manufacturing at the company’s factories in New Mexico, Ohio, Oregon and Arizona.

Here are the details of the deal, including what other semi-companies could benefit from it, and whether it makes Intel a good buy at the moment.

What is Intel’s deal with the government?

The U.S. government, under the CHIPS Act, provided $8.5 billion in federal grants and an additional $11 billion in loans to use four new semiconductor factories across the country. This is on top of the $100 billion in private capital that Intel itself has already invested in domestic semiconductor production.

Analysts predict that will be enough to allow Intel to produce 20% of the world’s “cutting edge” logic chips, critical for military and AI applications, by the end of the decade. Currently, the United States does not produce any of these chips, which will mark a dramatic shift in the balance of power when it comes to critical semiconductors.

Does this make Intel a good investment?

Every time the U.S. government invests money in a company, it generates a financial tailwind that is undeniably positive. However, when it comes to determining whether or not Intel is a good investment, many other factors come into play.

Although Intel will likely convert these billions of dollars into future profits, it may take months or even years for these effects to be felt. It’s also important to note that while $19.5 billion in grants and loans seems like a lot of money, Intel itself generated a whopping $54.2 billion in revenue alone. ‘in 2023.

Given that the company is already very large, the government’s $19.5 billion plan may not move the needle much compared to the profits and revenue the company already generates. In fact, the stock barely moved when this announcement was made in March 2024.

If you believe in Intel’s long-term business, this could indeed be a great time to acquire shares. Amid a strong rally in tech stocks in 2024, Intel shares are actually down more than 35% year to date and 33% over the past five years. The 35 analysts covering the stock have a consensus rating of “Buy,” with an average 12-month price target of $38.96. This suggests a potential gain of over 27% from current levels over the next year.

What about other semiconductor stocks?

Although Intel has gotten the lion’s share of the CHIPS Act 2022 money so far, other companies have also gotten a piece of the pie, including the following:

  • GlobalFoundries, which received $1.5 billion to expand its facilities in Burlington, Vermont, and Malta, New York.

  • Microchip Technology, which received $162 million to upgrade its facilities in Gresham, Oregon, and Colorado Springs, Colorado.

  • BAE Systems in Nashua, New Hampshire, awarded $35 million to produce chips for military applications.

GlobalFoundries, which trades under the ticker symbol GFS, has revenue of $7.4 billion in 2023. The 15 analysts who follow the stock have a “strong buy” consensus rating and price target average over one year of $58.50.

Microchip Technologies, ticker symbol MCHP, reported revenue of $8.5 billion in 2023. Analysts expect it to rise 7% over the next year, to $98.73.

BAE Systems is an under-followed stock that is covered by only one analyst. Although the analyst has a “strong buy” rating on the stock, the price target of $64.81 is below the current market price of $70.31. However, the stock has already delivered stellar returns to shareholders, and the analyst may revise the price target upwards. During the one-year, three-year, and five-year periods, the stock returned 19.92%, 40.72%, 161.47%, and 235.54%, respectively.

The essential

Of course, it’s great news for Intel to get government grants and loans for domestic semiconductor development, but that’s only one part of the big picture when it comes to ‘invest in the business. Analysts are projecting future growth and the stock has suffered in recent years, so if it can right the ship with this new money from the CHIPS Act, the company could prove to be a value at current levels.

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This article was originally published on GOBankingRates.com: Here’s Why You Should Consider Investing in Intel Today