Can Nvidia Save Intel's Foundry Bet?

Forbes

16-04-2025

Trefis
Consider this: we're currently in the midst of an intense trade war, with the U.S. government pushing for onshore manufacturing. Simultaneously, semiconductors have emerged as the cornerstone of the modern U.S. economy, powering everything from AI to defense. The government has identified semiconductors as a critical component of national security, with a focus on protecting American AI innovation and intellectual property. With the largest domestic chip production capacity, Intel stock appears well-positioned to benefit from these macro trends. The company has proactively invested $95 billion in capital expenditures over the past four years to build its foundry capacity. Yet, the stock has underperformed, falling nearly 3% year-to-date and dropping 45% over the past year. Investor confidence in Intel's foundry ambitions remains low, particularly given the unit posted nearly $13 billion in losses last year. However, a turnaround could be on the horizon as Intel ramps up production of its advanced 18A process and is reportedly close to securing Nvidia as a foundry customer.
The Intel 3 process node has already entered mass production and is currently used for manufacturing Xeon 6 data center processors. Intel has begun sampling chips made using its latest 18A process with laptop manufacturers. The company has previously touted the 18A process as a means to reclaim 'process leadership'—essentially regaining the lead in semiconductor manufacturing technology after years of trailing industry giants TSMC and Samsung. Intel's 18A process includes key innovations. While both the Intel 18A and TSMC's N2 nodes utilize gate-all-around transistors, Intel has added backside power delivery to its design, enhancing efficiency and performance. Confidence in Intel's technology appears to be growing among customers. Microsoft and Amazon have already engaged Intel to fabricate custom chips, including AI accelerators, and this momentum may build further.
To date, Intel's confirmed foundry clients have largely been non-traditional semiconductor players such as Amazon, Microsoft, Tower Semiconductor, and MediaTek. However, according to UBS, Nvidia may consider using Intel Foundry for manufacturing its gaming GPUs. Securing Nvidia—currently the world's largest fabless chip designer—would be a significant breakthrough for Intel's foundry strategy. In addition to the standard 18A node, Intel is developing a performance-enhanced variant called 18A-P. This version could appeal to customers seeking better performance or energy efficiency, similar to enhanced versions of TSMC's nodes. The 18A-P node may also offer improved yields, reduced variability, and a more refined manufacturing process. Other AI-focused semiconductor companies, including Broadcom and AMD, have also expressed interest in Intel's services, though Nvidia appears furthest along in its evaluation. It's important to note that Nvidia's interest currently centers on gaming GPUs, not its high-performance AI chips. Nevertheless, if Intel can prove the competitiveness of its process technology, it could eventually expand into producing AI chips for other clients as well.
Intel stock has seen highly volatile performance over the last four years, unlike the more stable S&P 500. Annual returns were 6% in 2021, -47% in 2022, a sharp rebound of 95% in 2023, followed by a 60% decline in 2024. The Trefis High Quality Portfolio, consisting of 30 stocks, has exhibited significantly lower volatility. It has also outperformed the S&P 500 over the same four-year span. Why is that? The HQ Portfolio comprises stocks that deliver higher returns with lower risk compared to the benchmark index—a smoother ride, as shown in the HQ Portfolio performance metrics. So, is now the right time to consider buying Intel stock?
Intel stock currently trades at less than 18x projected 2026 earnings—a reasonable valuation. Admittedly, the company faces headwinds, including falling earnings in recent years, market share losses to AMD in both PC and server markets, and the broader shift from CPUs to GPUs amid the AI boom. That said, if the foundry unit executes effectively on the 18A process and secures marquee customers like Nvidia, the stock could enjoy substantial upside. We estimate Intel's fair value at $25 per share—roughly 25% above its current market price. See our detailed analysis of Intel's valuation to understand what drives our forecast.
Invest with Trefis
Market Beating Portfolios | Rules-Based Wealth