On Tuesday, the No. 1 tech sector, water cooler conversation item was a giant financial company's investment into a major American chip maker.
Unfortunately for shareholders of American Micro Devices (AMD -0.70%), their company wasn't the one chosen by the suitor. With many investors surely feeling left out, they assertively traded out of AMD stock, leaving it with a more than 5% loss on the day. The S&P 500 index also declined, but its fall was far less steep at 0.6%.
Taking the decision hard
The company doing the investing was SoftBank, and its target was not AMD but the U.S. company's longtime rival Intel.
Image source: Getty Images.
After market close Monday, SoftBank announced that they had signed an agreement with Intel to invest $2 billion in the latter's common stock. That shakes out to $23 per each of the chip maker's shares, so it was hardly surprising that Intel vaulted past that level with a nearly 7% rise.
At a stroke, the deal makes SoftBank an important institutional investor in Intel (it'll be the fifth-largest investor overall). All told, it will hold around 2% of the American company.
For better and for worse, chip makers in this country have been flagged as businesses that could help widen the U.S. manufacturing base. This is a key goal of the Trump administration and a leading reason for its recent efforts to levy tariffs on the top trading partners of this country.
Knee-jerk reaction
Intel had been struggling more than AMD recently, so in many ways it's a more appropriate recipient of a chunky investment. That said, $2 billion is a large amount of capital for a company of any size, so that "shunned fiancé" feeling is completely understandable. It doesn't, however, change the outlook much for AMD, so perhaps the Tuesday slump will provide a good buying opportunity in the stock.
