What Happened:
Shares of computer processor maker Intel (NASDAQ:INTC) jumped 11.4% in the pre-market session after the company announced a "multi-year, multi-billion-dollar partnership" to make AI (artificial intelligence) chips for Amazon. According to its press release, Intel will produce an AI fabric chip using its most advanced 18A process node and a custom chip using Intel 3 for AWS (Amazon Web Services).
AWS CEO Matt Garman added. "By co-developing next-generation AI fabric chips on Intel 18A, we continue our long-standing collaboration, dating back to 2006 when we launched the first Amazon EC2 instance featuring their chips." Equally supportive of the positive price action, Intel announced plans to convert its Foundry business into a separate entity. The move will allow the unit to have its board and attract outside funding from investors.
Wall Street analysts provided constructive updates on the move, with Harlan Sur of JP Morgan adding, "We believe this move is a natural progression to drive better transparency and decision making/efficiencies and therefore should not be viewed as a surprise." After the initial pop the shares cooled down to $21.50, up 2.7% from previous close.
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What is the market telling us:
Intel’s shares are very volatile and over the last year have had 20 moves greater than 5%. But moves this big are very rare even for Intel and that is indicating to us that this news had a significant impact on the market’s perception of the business.
The previous big move we wrote about was about 23 hours ago, when the stock gained 7% on the news that the Biden-Harris Administration announced that the company (Intel) had been awarded up to $3 billion in direct funding under the CHIPS and Science Act for the Secure Enclave program. The CHIPS and Science Act is a U.S. government initiative to boost domestic semiconductor production and cut reliance on foreign suppliers.
According to the press release by the Department of Defense, "The funding (Secure Enclave program) will support the manufacturing of microelectronics and ensure access to a domestic supply chain of advanced semiconductors for national security."
Notably, Intel is the only American company that designs and manufactures leading-edge chips. The company further clarified that the award is different from the $8.5 billion funding in partnership with the U.S. Department of Commerce announced earlier in the year (March 20, 2024).
To demonstrate its readiness for the task ahead, the company noted it is on track to produce the 18A fabrication process (its most advanced manufacturing process for cutting-edge chips) in 2025. The update is good news for investors, especially for Intel fanboys betting on the company's ability to close the gap between competitors, including Taiwan Semiconductor Manufacturing Company, Samsung Electronics, and GlobalFoundries. While some might also argue that it is still early days, regardless, the updates are encouraging as the company continued to endure a challenging year, with the stock down more than 50% year to date.
Intel is down 55% since the beginning of the year, and at $21.50 per share it is trading 57.6% below its 52-week high of $50.76 from December 2023. Investors who bought $1,000 worth of Intel’s shares 5 years ago would now be looking at an investment worth $413.86.
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