Intel Stock Rises on Merger Rumors Amid Ongoing Challenges

Intel stock experienced a notable uptick on Monday, rising 3% to $22.50 as rumors circulated regarding the future of the beleaguered chip maker. This increase places Intel’s shares near a seven-week intraday high, aiming for their highest closing price since August 1. However, it’s important to note that the stock remains down 55% year-to-date, highlighting the challenges the company continues to face.

The surge in stock price follows reports of external interest in Intel, which is desperately seeking to improve its floundering stock performance. The Wall Street Journal reported that Qualcomm, another major player in the semiconductor industry, approached Intel with the possibility of a takeover. This news was echoed by other outlets, though neither company has publicly commented on the discussions. Additionally, Bloomberg reported that Apollo Global Management, an alternative asset management firm, has proposed an “equity-like” investment in Intel of up to $5 billion, representing just over 5% of Intel’s market capitalization, which stood at $93 billion at the close of trading on Friday.

These developments may bring a measure of optimism to investors, especially given the current state of confidence in Intel’s leadership. The company’s shares have declined by 17% over the last decade, while competitors like Nvidia have skyrocketed, gaining more than 25,000%, and Advanced Micro Devices (AMD) has seen an increase of over 4,000%.

Analysts, however, express skepticism about the feasibility of a merger between Intel and Qualcomm. If such a deal were to occur, it would represent the largest merger or acquisition in the technology sector’s history. JPMorgan credit analyst Christian Crosby noted in a recent client communication that obtaining regulatory approval for such a merger would be a lengthy and complicated process. This complexity is exacerbated by the current fraught U.S.-China relationship, especially in light of the upcoming elections.

Bernstein analysts, led by Stacy Rasgon, concur with this assessment. They believe that even if U.S. regulators might be more favorable toward the merger—viewing it as a collaboration between “national champions” amid the semiconductor arms race—gaining approval in China would likely be a protracted endeavor.

The critical question remains whether Intel is genuinely interested in pursuing such a drastic measure. Bernstein’s team suggests that, at present, Intel does not appear to be in a position of desperation necessitating a “fire sale” to Qualcomm. They argue that Intel has sufficient runway to navigate its current challenges, particularly due to significant cost-cutting initiatives. These measures include the recent announcement of a 15% workforce reduction, alongside government subsidies like the $8.5 billion awarded through the CHIPS Act.

Intel’s stock performance has been particularly dismal this year, making it the second-worst performer on the S&P 500, ahead of only Walgreens Boots Alliance. Over the past five years, Intel ranks as the tenth-biggest loser on the index, a situation made more stark by the soaring gains—over 300%—achieved by other Silicon Valley giants such as Apple, Broadcom, and Nvidia. The struggles Intel faces stem from a dual challenge: a consistent decline in both revenue and profits, coupled with a rising debt burden.

Projected sales for Intel are estimated at $52.4 billion for the current year, which would mark the company’s worst performance since 2010, reflecting a significant 33% drop from its record sales in 2020. Meanwhile, a forecasted net income of $1.1 billion would represent the lowest figure since 1992, plummeting 95% from 2020’s record results. These figures illustrate the depth of Intel’s financial troubles.

The struggles are compounded by a broader technological context, where Intel has found it increasingly difficult to compete with its more advanced rivals, particularly during the ongoing artificial intelligence boom. CEO Pat Gelsinger has previously highlighted a “technology gap” that separates Intel from its competitors, underlining the urgency for the company to innovate and adapt. This urgency was starkly illustrated when Intel’s stock experienced its worst trading day since 1974, dropping more than 25% after its most recent earnings report.

In summary, while Intel’s recent stock rally provides a glimmer of hope amid a sea of challenges, significant hurdles remain. The prospect of a merger with Qualcomm or investment from Apollo Global Management could shift the narrative, but analysts remain cautious about the practicality of such moves in light of regulatory obstacles and Intel’s ongoing struggles. Investors will be watching closely to see how Intel navigates this turbulent period, particularly as it strives to reclaim its position in an increasingly competitive semiconductor landscape.