Shares of Intel (NASDAQ: INTC) rallied as much as 8.2% today, before settling back into a 2.4% gain as of 12:40 p.m. ET.
While that gain in and of itself wasn’t especially notable in isolation, it was quite notable in light of the big declines across most of the rest of the semiconductor sector. For instance, the VanEck Semiconductor ETF (NASDAQ: SMH) was down around 5% at the same time Intel was up 2.4%.
The discrepancy likely had to do with comments from former President Donald Trump, which raised questions as to whether the U.S. would defend Taiwan in the event of a Chinese invasion.
Intel is the way to bring chipmaking back onshore
There was other news today in chip world, with ASML Holdings (NASDAQ: ASML) reporting better-than-expected earnings, although with a second-quarter outlook that, while calling for quarter-over-quarter growth, came in a bit below what analysts were expecting.
Another possible bearish element around chip equipment stocks today was chatter around further potential curbs on equipment sales to China. Today, Bloomberg reported the Biden Administration was “floating” the idea for increased curbs on equipment from Netherlands-based ASML and Japan-based Tokyo Electron (OTC: TOEL.Y), which the administration believes might still be selling advanced technology to China, despite 2022 curbs on U.S.-based semi-cap equipment sales to China.
Still, these two news items don’t explain why Intel would be up on a day when virtually all other major chipmakers are down. Intel also sells some chips into China, and is a buyer of ASML’s machines.
Thus, the reason likely has to be comments made by Trump in a Bloomberg Businessweek interview that was published today. In it, when asked about defending Taiwan in the event of a Chinese invasion, the former president and current Republican presidential candidate said:
They did take about 100% of our chip business. I think, Taiwan should pay us for defense… You know, we’re no different than an insurance company. Taiwan doesn’t give us anything.
It’s no wonder that these comments sent most chipmakers down significantly today. Taiwan is home to Taiwan Semiconductor Manufacturing (NYSE: TSM), which has a current lead in advanced chipmaking, and where virtually all of today’s leading-edge chips are produced. So if China were to invade Taiwan and cut off chip sales to the U.S., it could lead to an economic catastrophe.
However, Intel is rushing to position itself as a secure alternative, as the only chipmaker besides Korea’s Samsung that still has leading-edge manufacturing fabs. Under CEO Pat Gelsinger, Intel is investing significantly to build out a leading-edge foundry ecosystem for third parties in a bid to compete with TSMC.
Currently, Intel is building or expanding its manufacturing in Arizona, Ohio, Oregon, Israel, Ireland, and Germany in a bid to become a geopolitically safe home for advanced chip designers that would like to move some or all of their production out of Taiwan.
Intel is building out this footprint with the help of funding from the CHIPS Act, which was passed on a bipartisan basis in July 2022.
TSMC is also getting CHIPS Act funding in order to build leading-edge fabs in Arizona as well. However, TSMC would still have the vast majority of its most-advanced production in Taiwan, even after that diversification. With Intel’s footprint 100% outside of Taiwan, it would stand to benefit significantly should Taiwanese chipmaking come into question.
A war would still be disastrous, but concerns over security could benefit Intel
If Trump wins the election and then China invades Taiwan unopposed by U.S. defense, it would probably drag Intel down as well, just due to the significant broad global economic consequences.
However, heightened risks over Taiwan could spur more chipmakers to move some or all of their production to Intel’s foundry instead of TSMC’s. Given that Intel has very little third-party foundry revenue today, these geopolitical concerns should help it grow that business faster than analysts expect.
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Billy Duberstein and/or his clients have positions in ASML, Intel, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends ASML and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a disclosure policy.
Why Intel Shares Rallied Today on a Bad Day for Other Chip Stocks was originally published by The Motley Fool
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