What happened
Shares of Intel (INTC -9.20%) were curiously on the rise today, up 3.2% in Thursday trading even as most other semiconductor stocks were down markedly on the day.
When U.S.-China tensions rise, it can cause a broad sell-off in most semiconductor stocks. That was also true today, as it was reported yesterday China may ban government agencies from using iPhones. That not only caused a sell-off in Apple (AAPL -0.35%) but also in a host of its suppliers and semiconductor equipment stocks as well.
The sell-off may or may not have merit, with some analysts calling the worries "overblown." Still, when U.S.-China tensions mount, it is often Intel that actually sees gains as others lose.
Even though Intel has some China exposure by way of its PC and data center processors, Intel is also building out a U.S.-based foundry ecosystem it hopes will rival Taiwan Semiconductor Manufacturing (TSM 1.26%). Given that an invasion of Taiwan would be disastrous for TSMC and its customers, there is a thought that Intel would be a huge beneficiary, as chip designers might then pivot to Intel's foundries.
In addition, Intel also received its own positive analyst commentary today regarding that very foundry ecosystem it's building.
So what
At an industry conference at the end of August, Intel CEO Pat Gelsinger announced the company had received a large pre-payment for its foundry ecosystem. Specifically, the pre-payment was for 18A, the leading-edge 1.8nm fab Intel plans on bringing online at the end of 2024. That's also the fab in which Intel plans to produce chips that will regain process-node parity with, or even leadership over, TSMC.
Today, Citi analyst Christopher Danely noted that pre-payment likely came from a "whale," meaning an extremely large chipmaker that is likely a leader in its market.
That would be a promising vote of confidence in Intel's fledgling foundry and would play a key role in its turnaround. After all, leading chip designers such as Apple and Nvidia (NVDA 6.18%) would probably like an alternative foundry partner to manufacture their chips other than TSMC, which has the sole lead in its ability to produce chips on the current 5nm leading edge and the 3nm node that's just beginning this year. TSMC has raised prices over the past few years as well, taking advantage of that leadership.
And Intel would especially benefit if customers were to get nervous about the state of U.S.-China relations, which in the worst-case scenario could lead to an attempted invasion of Taiwan. While TSMC is building U.S. fabs at the moment, its most advanced fabs will still be in Taiwan going forward.
Now what
It is tough to make investment calls solely based on geopolitics, barring an extreme scenario such as an actual Taiwan invasion. However, that doesn't seem like it's happening anytime soon, so I would expect these noisy headlines to eventually subside.
More interesting actually is the state of Intel's turnaround efforts, which appear to be gaining traction in 2023. Gelsinger noted at that aforementioned conference that Intel's current quarter was tracking above the mid-point of guidance, perhaps signaling a bottom in the PC market. Moreover, Intel's roadmap to catch up to TSMC appears on track, and there is even small but rapidly growing interest in Intel's Max and Gaudi AI accelerators, which have the potential to carve out some share of the booming AI market.
If any one of those product segments achieves success, it's possible Intel's stock, which has lagged the chip sector for years, could begin to work again.
