What Trump's Victory Means for Intel Stock

Like much of the stock market on Wednesday, Intel (NASDAQ: INTC) shares soared along with broad gains in tech and chips stocks. Investors applauded Donald Trump's election victory Tuesday night, expecting tax cuts and looser regulations to encourage business investment and profit growth.

However, few companies have as much riding on the next administration as Intel, which stands to be a major beneficiary of the CHIPS Act and is also in disarray after years of underperformance and a massive restructuring announcement in August.

It's not fully clear whether the former president will honor the commitments in the CHIPS Act, but he's badmouthed the law on multiple occasions, recently telling podcaster Joe Rogan, "That chip deal is so bad," adding, "When I see us paying a lot of money to have people build chips, that's not the way." He then advocated for tariffs as a better way of funding chip manufacturing.

House Speaker Mike Johnson also said a Trump administration would probably repeal the CHIPS Act, though he later walked back those comments.

What the CHIPS Act does

The CHIPS and Science Act allocates $52.7 billion for American semiconductor activity, including $39 billion in manufacturing incentives. The law is designed to make the U.S. semiconductor industry more resilient and ensure an adequate supply of chips at a time when Taiwan, the center of the global semiconductor manufacturing industry, is under pressure from China and facing energy constraints.

Arguably, no company stands to benefit more from the CHIPS Act than Intel, one of the few American companies that both designs and manufactures chips and a company that, despite its recent struggles, has been seen as an industry leader for generations.

In March, Intel and the Biden administration signed a non-binding commitment for the chipmaker to receive $8.5 billion in grant money for new foundries, and Intel is set to receive up to $11 billion in loans from the federal government as well, in addition to tax relief.

That agreement is part of Intel's plans to invest more than $100 billion over the next five years in new plants in the U.S.

Image source: Getty Images.

How important the CHIPS Act is for Intel

In 2021, Intel created a new business, Intel Foundry Services, planning to use its foundries to manufacture chips for fabless semiconductor companies.

Thus far, that strategy has resulted in billions of dollars in losses as Intel has yet to build up its customer base and roll out its new 18A process, but CEO Pat Gelsinger announced a bold goal of making the foundry business the second-largest in the world by 2030, and for it to generate 30% adjusted operating margins.

The CHIPS Act plays into that strategy and the $19.5 billion award was announced before Intel shared those goals. However, more recently, Gelsinger has grown frustrated with the lack of disbursement from the law, and Trump's election could only further complicate that. Separately, Intel received $3 billion for military chips as part of a Secure Enclave grant.

What will happen to the CHIPS Act?

At this point, any discussion about what will happen to the CHIPS Act under a Trump administration is speculation. But there are a number of options we can assess.

First, the Biden administration could choose to disburse all the funding before the Trump administration takes office, though it's unclear if it will do that.

Speaker Johnson also said he sees opportunities to streamline and improve the bill by removing costly regulatory requirements, for example.

Trump's own statements on the CHIPS Act and his dismantling of various Obama-era policies in his first administration indicate that if he keeps the deal, he's likely to revamp it to put his own signature on it and claim it as his own.

The M&A question

Beyond the CHIPS Act, there's another way the Trump administration could influence Intel over the next four years.

A buyout or a merger with the company seems like a very real possibility given its challenges and plummeting valuation. According to a recent media report, the Commerce Department, which oversees the CHIPS Act, is discussing whether Intel needs to be combined with another chip company because it's taking on strategic importance in the supply chain through the CHIPS Act. But those considerations are "purely precautionary" at this point

In September, media outlets also reported that Qualcomm had expressed interest in Intel as a buyout, and a Trump administration is expected to be friendlier to mergers and acquisitions than the current one.

That could also open the door to an M&A deal for Intel.

What it means for Intel

For now, it's not fully clear how the Trump administration will impact Intel, but federal policy is likely to affect the stock. Given its exposure to the CHIPS Act and potential involvement in acquisition, investors should pay attention to how the Trump administration approaches the chip sector and Intel specifically.

However, based on the initial bump that Intel and its peers got from the election, investors seem to think that Trump's victory is a positive sign for the stock, which should give them some reassurance for now.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intel and Qualcomm. The Motley Fool recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.