Does Intel’s New $3 Billion Deal With The Pentagon Make The Stock A Buy?

Semiconductor stocks have been some of the biggest winners in the heated artificial intelligence (AI) race. Among the higher-profile chip companies are Intel (NASDAQ: INTC)which recently won a deal worth up to $3 billion with the US Department of Defense (DOD).

Let’s dig into this deal and how it’s playing a role in Intel’s growth right now. Moreover, after a thorough analysis of the stock, I will offer my thoughts on whether now is a good time to buy Intel stock right now.

I’m starting to notice a pattern with Intel

President Joe Biden has been busy for the past four years. In my opinion, an often overlooked piece of legislation from the Biden-Harris administration is the CHIPS and Science Act. One of the biggest initiatives in the CHIPS Act is to bring more manufacturing and research jobs to the semiconductor space in the US.

In September, Intel received a deal worth up to $3 billion as part of the CHIPS Act’s Secure Enclave Program. According to the DOD website, the Secure Enclave project aims to “support microelectronics manufacturing and provide access to a domestic supply chain of advanced semiconductors for national security.”

This is not the first time Intel has been a beneficiary under the CHIPS Act. In March, Intel and the Commerce Department agreed on preliminary terms of $8.5 billion in financing to help the company build additional manufacturing facilities in Arizona, Ohio, Oregon and New Mexico.

While these deals are an important step in helping bring more chip investment to the US from abroad, I see some downsides for Intel’s government business.

Disadvantages of public sector businesses

Unpredictability is a risk in any type of transaction. However, I find public sector business much less predictable compared to the private sector. Government initiatives are sensitive to budget cuts, and priorities often change dramatically within different political administrations.

Despite their unpredictability, major government contracts can turn out to be profitable sources of steady business. However, focusing on renewing stable public sector deals may come with the opportunity cost of investing in new product development outside of these government deals. For these reasons, companies that rely heavily on government opportunities run the risk of being viewed as less innovative compared to their peers.

Finally, it is only natural that public sector transactions receive a higher level of scrutiny compared to private sector opportunities. If a company does not meet its expected results or requirements, investors may begin to view a company more negatively than is warranted, just because of their knowledge of failures in higher profile reported deals.

The story continues

Is Intel stock a buy right now?

The chart below illustrates the year-to-date returns to 2024 for a number of semiconductor stocks. The obvious outlier in the chart is Intel, and not in a good way. The company’s negative 55% return so far this year doesn’t exactly inspire confidence — especially when many other chip stocks are outperforming S&P 500 and Nasdaq Composite.

Perhaps billionaire investor Leon Cooperman summed it up best last week during his segment on CNBC Squawk Box when he said Intel was on “government assistance”. That’s a harsh way of saying it, but not necessarily untrue.

Despite some important work with the federal government, Intel doesn’t seem to be revving its engine. Revenue and cash flow continue to be in the wrong direction. Much of Intel’s stagnant business performance can be traced back Taiwan Semiconductor Manufacturingwhich continues to win more offers and lucrative opportunities from the biggest players in the technology sector.

While the CHIPS Act deals are gaining traction, they have yet to translate into significant long-term opportunities for Intel. I don’t see Intel’s new $3 billion deal as a reason to buy the stock. In my eyes, Intel’s stock price is guaranteed, and I wouldn’t be surprised to see it drop even lower.

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Adam Spatacco has positions in Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and Intel and recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.

Does Intel’s New $3 Billion Deal With The Pentagon Make The Stock A Buy? was originally published by The Motley Fool