Intel, once one of the world’s most important chip makers and a vital part of the U.S. tech landscape, has struggled to match the pace of growth from Asia-based rivals such as Taiwan Semiconductor and Samsung. It has been eclipsed in the race to develop artificial intelligence chips by domestic players Nvidia and Advanced Micro Devices.
That has left the U.S. reliant on foreign tech supply chains, a shift that both the president and former President Joe Biden have deemed a threat to national security.
However, while the Biden administration looked to address those concerns through the CHIPS and Science Act, which earmarked $53 billion in support for the semiconductor sector, the Trump administration looks set to take a more direct route. According to the Wall Street Journal, how the government could take a stake in Intel is now being hashed out.
Intel declined to comment to Barron’s. White House spokesman Kush Desai said reports of deals not announced by the administration should be regarded as speculation.
“It’s tricky to think about how this could work, and it is unprecedented in terms of the marriage of politics and private enterprise” said Paul Argenti, professor of management and corporate communication at the Tuck School of Business at Dartmouth College, during an interview with CNBC on Friday.
“Semiconductors are a really strategic asset, there’s no question about that,” he added. “But government as a shareholder brings real governance risks.”
In fact, the president is taking a new tack when it comes to U.S. industrial policy. He has made deals tied to the China-based sales of Nvidia and AMD and taken a so-called golden share in the $14 billion takeover of U.S. Steel by Japan’s Nippon Steel. The Defense Department is taking a $400 million stake in the rare-earth metals producer MP Materials.
An Intel stake, if such a deal happens, would be different. The closest parallel is to the government’s broader effort to bail out Wall Street during the 2008-2009 financial crisis, which involved the U.S. taking a large stake in the insurer American International Group. Deeming AIG “too big to fail,” the government provided it with loans and equity in the region of $182 billion, exiting the group with a $23 billion profit in 2012.
Intel is like AIG in that it is critical to an important element of the U.S. economy, the tech sector, as the largest American company that both designs and manufactures its own chips. Although it lost around $2.9 billion last quarterit still carries an investment-grade credit rating and has a market value of more than $100 billion.
Its plans to build a $30 billion factory hub in northern Ohio, however, have been replete with delays. The hub isn’t likely to be up and running until early next decade.
While Intel isn’t close to failing, its role in the tech sector and potential for it to be a player in AI means it is important for it to succeed.
“Winning the AI Race is nonnegotiable,” Secretary of State Marco Rubio said late last month. “America must continue to be the dominant force in artificial intelligence to promote prosperity and protect our economic and national security.”
Earlier this year, Trump administration officials looked into a possible deal that would have allowed Taiwan Semi to operate Intel’s foundry business as part of a joint ownership structure. The Wall Street Journal reported, however, that the president wasn’t sold on the idea of foreign control of a business seen as critical to national security.
A government stake in Intel would give lenders to the company the reassurance of the nation’s ironclad credit rating as a backstop, likely removing any concerns about access to capital for its Ohio project. But it could also leave Intel vulnerable to dictates from the White House as it attempts to define its strategy under new CEO Lip Bu-Tan.
“Intel is simultaneously dealing with tough competition, a lack of an AI pipeline, and a capex-intensive manufacturing business that continues to generate heavy losses and which remains well-behind industry leader TSMC that is rapidly building a U.S. presence,” said Bank of America analyst Vivek Arya in a recent client note.
That level of complexity makes the government’s decision to get involved directly even more challenging, particularly in a sector that is undergoing rapid change.
Government stakes in key industries aren’t always profitable, either. The AIG investment ultimately paid off, but taxpayers lost around $10 billion from the rescues of Ford Motor, General Motors, and Ally Financial at around the same time.
They also haven’t seen a dime of profit from the U.S.’s five decades of support for the passenger railroad Amtrak.
“Picking winners in real time carries major risks,” said Argenti of Dartmouth College. “If Intel delivers, this is going to look like a genius, visionary move. If not, it becomes a very expensive lesson in government overreach, which I think is potentially what we’re looking at here.”
