The US Should Not Own Intel Stock: A Misguided Approach to Semiconductor Manufacturing

The US government has agreed to exchange Chips Act grants for equity in Intel, which is a mistake according to the author. The Chips Act aims to reverse decades of disinvestment in domestic semiconductor manufacturing and reduce dependence on Taiwan for advanced chips. The grants, loans, and tax credits are intended to close the cost gap with Asian manufacturing and foster investment in the US.

The U.S. government's decision to exchange CHIPS Act grants for a 10% non-voting equity stake in Intel Corporation has sparked debate among investors and financial professionals. This move, aimed at boosting the domestic semiconductor industry, raises significant questions about its strategic value and potential risks [1].

The CHIPS Act, signed into law in August 2022, seeks to reverse decades of disinvestment in U.S. semiconductor manufacturing and reduce dependence on Taiwan for advanced chips. The act provides grants, loans, and tax credits to close the cost gap with Asian manufacturing and foster investment in the U.S. [2].

Intel's recent financial struggles, including $19 billion in losses in 2023 and $3.7 billion in the first half of 2025, underscore the urgency of the government's intervention. The $10.9 billion CHIPS Act equity conversion aims to align Intel's performance with national security goals while mitigating the risk of wasted taxpayer money on underperforming projects [1].

For Intel, the equity stake could provide critical capital to accelerate its 18A node development and AI-specific chip production. The company's recent $2 billion investment from SoftBank, elevating the Japanese firm to its fifth-largest shareholder, underscores growing confidence in its strategic role. However, the government's involvement introduces a unique dynamic: while it lacks voting rights, it may exert indirect influence through policy pressures, such as prioritizing defense-related projects over commercial ventures [1].

The potential upside for investors hinges on Intel's ability to leverage public and private capital to regain technological leadership. Key catalysts include government-funded R&D, strategic partnerships, and operational efficiency improvements [1]. If successful, Intel could become a cornerstone of the U.S. semiconductor renaissance, mirroring TSMC's dominance in foundry services.

However, the risks are equally pronounced. A government stake may distort market dynamics by prioritizing geopolitical goals over profitability. For example, Intel could face pressure to divert resources to national security projects, slowing commercial innovation. Additionally, the company's financial health remains fragile: its debt has risen 23% year-over-year, and gross margins have contracted by 10% since 2022 [1].

Investors should monitor key metrics, such as 18A node production timelines, debt management, and government influence on R&D priorities. The broader semiconductor landscape also presents opportunities and risks. While Intel's government-backed revival is unique, rivals like AMD and TSMC are scaling AI and advanced manufacturing without political entanglements.

The Trump-Intel equity deal is a bold experiment in industrial policy, blending public and private interests to secure U.S. technological leadership. For investors, it represents a high-stakes opportunity with potential volatility and execution risks. Caution is warranted, and a diversified approach may mitigate risks.

References:
[1] https://www.ainvest.com/news/trump-intel-equity-deal-high-risk-high-reward-bet-semiconductor-revival-2508-2/
[2] https://www.deloitte.com/us/en/services/tax/articles/chips-act-state-tax-incentives.html