Lynx Equity on Intel (INTC): 'We would fade the rally'

Lynx Equity on Intel (NASDAQ: INTC): 'We would fade the rally'.

The analyst comments "Why would TSM wish to take a stake in Intel’s IFS? On more than one occasion, senior members of the TSM management team have expressed their distaste for running fabs overseas, due to higher cost and lack of local talent pool. Why then would TSM wish to acquire an external foundry having questionable performance at advanced nodes, one that is running deeply in the red, and according to the Intel CFO, one that is expected to break even no earlier than late 2027? What could be TSM’s incentive to take a stake, even at discounted valuation given 1) fab capacity at leading and lagging nodes is no longer in short supply, 2) IFS’s less-than-clear relationship with external asset management companies and 3) IFS’s tortured relationship with the US government via the CHIPS Act. Organic business justification for a TSM rescue of IFS is hard to come by. And then there are other reasons. Coercion, via threat of tariffs on semis imports, could be a reason for TSM to come to the table. This is the scenario proposed by a gaggle of media reports last week. If so, the implication is that there must have been a discussion between TSM and representative of the US government. Investors have no way to establish the veracity of these media reports. We note that a few months ago there was a trial balloon where the prospect of QCOM coming in as an investor was proposed in the financial media. The balloon vanished without a trace. Even if there is substance behind the media reports, there could be knotty geopolitical barriers to a potential IFS/TSM relationship. In our view, the 20+% rally in INTC stock last week, based in part on a possible rescue of IFS by TSM, could be based on wishful thinking. We would fade the rally."

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