Intel Surges on M&A Talks: Rally Beginning or Just a Headfake?

Key Points

• Shares of Intel have risen strongly over the past several days, beginning when Vice President JD Vance made bold comments at an AI conference.
• News that two of the world's biggest semiconductor firms are looking at a deal with the company added to the rally and investor excitement.
• Is the rally in Intel just a blip on the radar, or is it here to stay?

Shares of the much-maligned semiconductor giant Intel NASDAQ: INTC have jumped over 30% in the past week as of the Feb. 18 close. This is primarily due to rumors that Intel could sell off large parts of its business to two semiconductor behemoths. President Trump reportedly planted the seed for this idea. So, is the rise in Intel shares a sign that things could be turning around for this stock, or is it driven by hopeful optimism without staying power?

Below, I’ll detail the much-talked-about rumors involving Taiwan Semiconductor Manufacturing NYSE: TSM, Broadcom NASDAQ: AVGO, and Intel. I’ll also shed light on comments made by Vice President JD Vance that kicked off the rally.

Breaking Down JD Vance’s Head-Turning Comments

The big rally in Intel shares started after comments made by Vance at the AI Action Summit in Paris. He made several statements supporting a deregulatory approach to artificial intelligence. However, the particularly important comment for Intel surrounded chip manufacturing.

Vance stated, "The Trump Administration will ensure that the most powerful AI systems are built in the U.S. with American-designed and manufactured chips.” This has large positive implications for Intel. Intel is essentially the only advanced-node chip manufacturer based in the United States. These are the types of chips needed for AI. TSMC and Samsung Electronics OTCMKTS: SSNLF are building advanced manufacturing facilities in the U.S.; however, they remain foreign companies.

Overall, if Trump wants a U.S.-based firm to manufacture advanced-node chips, Intel is really the only game in town. Still, Intel’s capabilities in this respect are currently limited.

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TSMC and Broadcom Get Involved

Shares kept rising in the days that followed. The Wall Street Journal reported that Taiwan Semiconductor Manufacturing and Broadcom are both considering purchasing different parts of Intel’s business. Broadcom is “closely examining Intel’s chip-design and marketing business." It could make an offer for it, but only if another company overtakes Intel’s manufacturing arm. That is where TSMC could step in; however, the two firms are not working in concert.

For Intel, a deal of this sort would be a boon to the company. Analysts have long argued that breaking off its money-losing foundry business would add value to the rest of its business. This comes from the idea that the "sum of the parts" is more valuable than the combined Intel business. Still, there are many problems with the actual feasibility of such a deal happening.

Intel Takeover Talks: Mired in Political Hurdles and Uncertainty

First off, it's somewhat unclear what the Trump administration wants out of this deal. The consideration of such a deal by TSMC apparently came at the request of the administration. However, a White House official also said that “the president is unlikely to support a foreign entity operating Intel’s factories." It is hard to see how TSMC can make Intel competitive in AI without this happening. However, some type of “investor consortium” where TSMC invests significantly in Intel but doesn’t operate it could be an answer.

Additionally, a deal would nearly require approval from both the Chinese and United States governments. Given the tense relationship between the two countries, especially over semiconductors, this seems like a tall order.

From TSMC’s perspective, the deal would mean helping to save a floundering competitor. They value gaining favor with the United States, but is it worth risking their essential monopoly in the advanced chip manufacturing space? TSMC has more customers in the United States than in China. Still, the company wants to maintain good relationships with both countries.

For Broadcom, one analyst noted Intel’s product line could be complementary and would make the firm a leader in CPUs. It also has a strong history of integrating other companies, as demonstrated by its hugely successful purchase of VMWare. Still, acquiring Intel’s product business would likely be by far the largest transaction in the company’s history. That would be tough for a firm with $69 billion in debt and only $9 billion in cash on its balance sheet.

Overall, this remains a fluid and highly uncertain situation in my view. The Trump administration clearly wants to prop up Intel, but this deal coming together seems unlikely. However, talks are early and it could lead to something more reasonable over time. Just as Intel shares rose on these rumors, they could fall if rumors that the deal won’t happen come through. At this point, I would tend not to get too excited about the possibility of Intel’s recent surge turning into substantially more than just that.