Why Intel Stock Is Rising Today

Intel (INTC 1.62%) the stock gains ground on Friday. The company’s stock price was up 2.9% at noon ET, according to data from S&P Global Market Intelligence. Meanwhile, the S&P 500 the index increased by 1%.

Intel shares are rising on comments from Federal Reserve Chairman Jerome Powell suggesting the central bank will cut interest rates soon. Besides being an optimistic catalyst for the stock market as a whole, rate cuts would help improve the semiconductor company’s financial health and support turnaround plans.

The Fed is likely to cut rates next month

This morning, Powell said “the time has come” for the Federal Reserve to cut interest rates. With signs that the US economy is facing some strain and inflation nearing the bank’s annual target of 2%, the stage looks set for the central bank to cut rates next month.

Lower interest rates typically encourage companies to spend for growth because borrowing money becomes cheaper, and the relative benefits of simply parking funds in bonds or other low-risk investments are reduced. A similar dynamic exists in the stock market, with low interest rates making investors less risk-averse and more bullish on companies with growth-dependent valuations.

Lower interest rates could be especially good for Intel

Intel is in the early stages of a massive restructuring effort. In addition to laying off about 15 percent of its global workforce as part of dramatic cost-cutting initiatives, the company must also invest heavily to build its chip-making business and fund research into new chips that can help it compete with rivals, including Nvidia, Advanced microdevicesand Arm holds. It’s a difficult balance to strike — and one that’s only made more difficult by the current high interest rate environment.

Intel currently has about $53 billion in debt on its books. With a rate cut, the company may be able to refinance some of its debt and reduce its overall interest expense. The company’s earnings have already been under pressure of late, and any easing on that front would likely help ease the intense bearish sentiment currently surrounding the stock.

Alternatively, lower interest rates would make it cheaper for Intel to borrow money to finance its growth bets. Building its position as a provider of chip manufacturing services for third-party designers will be enormously expensive. Improving its position in core central processing unit (CPU) markets and making gains in the data center market won’t come cheap either. Intel has a lot going for it with its turnaround initiatives, and the lower rates will at least make the switch less daunting.