Is Intel stock a buy after 10% US government stake?

What do Wall Street analysts think of the deal?

Intel (NASDAQ:INTCO), the pioneering semiconductor manufacturer, has a new stakeholder — the U.S. government.

Intel announced last week that the federal government is making an $8.9 billion investment in Intel stock, which is about a 10% stake in the company.

The government’s stake will be mostly funded by $5.7 billion in unpaid grants previously awarded to Intel under the U.S. CHIPS and Science Act. The remaining $3.2 billion comes from the government’s Secure Enclave program, funded by the Chips and Science Act for the production of semiconductors for national security applications. This is on top of the $2.2 billion that Intel has already received through the Chips and Science Act.

“As the only semiconductor company that does leading-edge logic R&D and manufacturing in the U.S., Intel is deeply committed to ensuring the world’s most advanced technologies are American made,” said Lip-Bu Tan, CEO of Intel. “President Trump’s focus on U.S. chip manufacturing is driving historic investments in a vital industry that is integral to the country’s economic and national security. We are grateful for the confidence the President and the Administration have placed in Intel, and we look forward to working to advance U.S. technology and manufacturing leadership.”

The historic agreement with Intel comes just weeks after Trump wrote in a Truth Social post that the Intel CEO is “highly conflicted and must resign.”

This came after Sen. Tom Cotton (R-AR) sent a letter to the Intel board expressing concerns about Tan’s ties to China through a former company.

Intel responded on August 7 by saying Tan and the company is “deeply committed to advancing U.S. national and economic security interests and are making significant investments aligned with the President’s America First agenda.”

Two weeks later, after Tan met with Trump, Lutnick and Treasury Secretary Scott Bessent, this equity stake deal was hammered out.

A 10% stake in Intel

While the funding is from money already earmarked for Intel through the Chips and Science Act, it is unusual for the government to be an equity stakeholder in a company, although it has happened in the past. Most notably, during the Global Financial Crisis, the government took a majority stake in General Motors as part of the 2008 auto industry bailout. The government has long since sold off its stake in GM.

Through this deal with Intel, the government is purchasing 433.3 million primary shares of Intel common stock at a price of $20.47 per share, which represents a 9.9% stake in the company. It will be passive ownership by the company, meaning the government will have no board representation or other governance or information rights. The government also agrees to vote with the board on matters requiring shareholder approval, with limited exceptions.

Further, the government will receive a five-year warrant, at $20 per share for an additional 5% of Intel stock, but only if Intel ceases to own at least 51% of the foundry business. It follows a $2 billion stake by SoftBank last week in Intel.

The investments come at a time when Intel is investing more than $100 billion to expand its U.S. chipmaking operations. Intel is the leading player in the CPU chip market, but it has lost ground to AMD in recent years, particularly in the server market. It also makes GPUs but is a minor player compared to Nvidia.

In addition, Intel started a foundry business, where it makes chips for other companies. For its foundry business, it is in the process of building a new facility in Arizona. It hopes to gain market share in this business, which is dominated by Taiwan Semiconductor.

What do Wall Street analysts think of it?

Intel stock rallied some 5.5% on Friday when the news was announced, but stocks were up big on Friday due to Fed chair Jerome Powell’s Jackson Hole address. How much had to do with this deal is unclear.

On Monday, Intel stock was actually down 1%, so investors seem to be taking it mostly in stride.

Wall Street analysts were not all that bullish either. Analysts at BofA said the deal has positives as well as potential pitfalls but weon’t move the needle until there is more clarity on its manufacturing progress and manufacturing competitiveness. It has a neutral rating with a $25 per share price target, reported the Fly.

Analysts at Bernstein questioned the move by Intel, saying it is giving up a 10% stake for Chips funding it would have had anyway, which “seems worse.” Bernstein analysts said Intel needs customers, adding that “funding a build-out with no customers probably won’t end well for shareholders,” reported the Fly. Bernstein maintains a market perform rating with a $21 per share price target.

Adverse reactions?

Intel itself is well aware of the risks, according to an August 22 SEC filing.

“The company’s non-US business may be adversely impacted by the US Government being a significant stockholder. Sales outside the US accounted for 76% of the company’s revenue for the fiscal year ended December 28, 2024,” the filing stated. “Having the US Government as a significant stockholder of the Company could subject the Company to additional regulations, obligations or restrictions, such as foreign subsidy laws or otherwise, in other countries.

They also cited the potential for adverse consequences given the scarcity of transactions like this with the US government becoming a significant stockholder.

“Among other things, there could be adverse reactions, immediately or over time, from investors, employees, customers, suppliers, other business or commercial partners, foreign governments or competitors. There may also be litigation related to the transaction or otherwise and increased public or political scrutiny with respect to the company,” the filing said. “Any of the foregoing could have a material adverse effect on the Company’s revenue, operations, financial position, cash flows, access to financing, cost structure, competitiveness, reputation, profitability, and prospects and could exacerbate other risks.”

Intel stock has a median price target of $22 per share, which would be about a 10.6% drop from its current price. It also has an extremely high P/E ratio of 88 and an even higher forward P/E of 227. Government deal aside, the stock is way too expensive to consider right now, given its growth projections. But the new partnership certainly bears watching.