r/valueinvesting
Intel has to start raising equity to get over the capex spending
Intel should issue new shares to fund massive foundry capex and avoid overleveraging, given its high valuation.
- Growing foundry pipeline including the $119B Terafab project with commitments from major tech firms.
- The immediate crisis has passed and the stock price has recovered noticeably.
- Trading at a historically high trailing valuation that fails to fully account for 14A node ramp-up risks.
- Requires massive capex and already carries $51.5B in gross debt, making a 4-5% equity dilution likely.
- Previous attempts to sell partial factory stakes had to be reversed at a high cost of $14.2B.
The stock has recovered noticeably, largely pricing in a growing foundry pipeline that includes the multi-phase $119B "Terafab" project with commitments from Tesla, SpaceX, Nvidia, and Google.
While the immediate crisis has passed, the capital expenditures required for this expansion are substantial.
To fund this growth without overleveraging the balance sheet, Intel should consider issuing new shares while the equity market is strong. Here is the value investing thesis for why a capital raise right now is the most cost-effective path forward.
Management previously tried selling partial factory stakes to private equity, but they had to go back and spent $14.2 billion to reverse that choice.Intel had originally sold a 49% stake in Ireland’s Fab 34 to Apollo for cash. They recently bought it back because giving away nearly half the economics of a primary manufacturing asset proved too expensive over the long term.
With that approach set aside, the remaining options are debt or further asset sales. Intel already carries roughly $51.5 billion in gross debt (including the Apollo bridge loan).
Intel is trading at a historically high trailing valuation. The current share price reflects high expectations and does not fully account for the operational risks of ramping up the new 14A manufacturing node.
A 4% to 5% equity issuance at current market prices would raise approximately $25 billion in cash.
Intel should take advantage of a favorable market window to fully de-risk the execution of its foundry business. From a value investing perspective, prioritizing balance sheet strength during a massive expansion phase is the safest route
What do you think?
all these semi companies not raising HUGE amounts of equity at these astronomical prices will go down in history as the biggest blunder. and i know everyone is gonna act like it was obvious in retrospect -- even though they were buying at those/these levels
I agree, I think the ones who are correctly doing this are Google
They can always take a down payment for chips manufactured in the future to fund the fabs. That is the most logical choice.
Daddy 🥭 should inject another 10B to pump it further. It’s a matter of national security short term profit.
An equity sale is fine but it only makes sense if it is a strategic partner like how the other AI investments work.
Why is this guy spam posting this?
Spam??
This seems to be a growing theme where the chipmakers themselves start suffering from massive capex. I think we are going to start seeing a pullback in some of the hot shot RAM stocks, similar to what we've been seeing with the Mag 7. I think money may flow downstram to some of the materials science companies like AMAT. But if MU falls, it could bring down the entire market.