Key Highlights

● INTC shares closed down 2.63% at $116.19 on Monday, October 5, on 81.33 million shares, about 0.74 times normal volume.

● Elon Musk confirmed that Taiwan Semiconductor Manufacturing Co. is in preliminary talks to participate in Terafab, where Intel had been the sole named manufacturing partner.

● Second-quarter Revenue rose 25% to $16.1 billion, with Data Center and AI revenue up 59% to $6.3 billion and Intel Foundry revenue up 31% to $5.8 billion.

● Intel reports third-quarter results on October 22 after guiding to revenue of $15.8 billion to $16.8 billion.

Intel (NASDAQ:INTC) slid on Monday on a threat to the most prominent outside endorsement of its manufacturing comeback. Elon Musk confirmed that Taiwan Semiconductor Manufacturing Co. (NYSE:TSM) was in preliminary talks to participate in Terafab, the Texas chip-manufacturing venture backed by Tesla (NASDAQ:TSLA), SpaceX (NASDAQ:SPCX) and xAI, where Intel had been the sole named manufacturing partner. Intel shares closed down 2.63% at $116.19 on 81.33 million shares, about $9.5 billion in dollar volume, according to market data. That was below its average volume, at 0.74 times normal, yet still enough to rank 12th among the most actively traded US stocks.

What's driving the volume

The decline was concentrated in Intel. The shares fell nearly 4% before the open and hit an intraday low near $114.52 before recovering part of the loss by the close. Rival AMD (NASDAQ:AMD) slipped only modestly and Nvidia (NASDAQ:NVDA) rose 2.12%, while TSMC gained on the same headlines. The broader market was firm, with the Nasdaq Composite up 1.05%.

Terafab, first announced by Musk in March, aims to build enough chipmaking capacity to Supply one terawatt of computing power a year for AI and robotics. Intel joined in April, with its next-generation process technology expected to anchor the facility, and with output reserved for Musk's companies. That role became a central part of the bullish argument that Intel's foundry can attract major external customers. Musk later suggested TSMC would supplement rather than replace Intel, but the market's concern is about exclusivity and credibility. Analyst Gil Luria put it bluntly, saying investors may reconsider the Credit they have given Intel if it turns out to be only one of several fab technology providers.

A second, quieter pressure point came from Susquehanna, which estimated that Intel lost PC processor share in the third quarter. The firm estimated Intel's laptop share fell 3.9 points to 68.1% while AMD rose to 29.3%, and that Intel's desktop share slipped to roughly 76%, the lowest since mid-2023.

Context helps explain why investors reacted quickly. Intel has roughly tripled this year, rising about 200% year to date compared with around 50% for TSMC's US-listed shares. After a run like that, any hint that a key pillar of the story is less unique tends to prompt profit-taking. The sharp rebound is all the more striking given that Intel was removed from the Dow Jones Industrial Average in November 2024, replaced by Nvidia, at the low point of its reputation. Monday's below-average Volume suggests orderly trimming rather than a rush for the exits.

The business

Intel designs and manufactures processors for PCs and servers and, through Intel Foundry, is trying to become a contract manufacturer for other chip designers, competing directly with TSMC and Samsung. Its product businesses include the Client Computing and Physical AI Group, which sells PC chips, and Data Center and AI, which sells server processors. Under CEO Lip-Bu Tan, the company has staked its turnaround on advanced manufacturing nodes, including Intel 18A and the forthcoming 14A, and on winning outside foundry customers.

Recent results and guidance

Second-quarter results, released July 23, were the strongest in years. Revenue rose 25% to $16.1 billion, which was Intel's fastest growth since 2011. Data Center and AI revenue climbed 59% to $6.3 billion, the client group generated $8.9 billion, and Intel Foundry revenue grew 31% to $5.8 billion. Non-GAAP Earnings were $0.42 per share, with non-GAAP gross Margin of 41.8%, and the shares jumped 11% after hours. Management said data center Demand was outrunning supply and that it had signed 10 long-term contracts with server CPU buyers.

On a GAAP basis, Intel lost $2.16 per share, mainly because of a $12.5 billion mark-to-market loss on escrowed shares tied to its CHIPS Act agreement with the US government. That accounting charge is why its trailing earnings are negative and its P/E is not meaningful.

The foundry remains a work in progress. External foundry revenue was just $293 million in the quarter and the unit posted an operating loss of about $2.1 billion, though 18A output is running about 25% ahead of target. Tan has said he is more confident than ever in the strategic significance and unique value proposition of Intel Foundry, a view Monday's news will test. Chief Financial Officer Dave Zinsner said the second quarter beat guidance on robust demand and improved execution. For the third quarter, Intel guided to revenue of $15.8 billion to $16.8 billion, non-GAAP EPS of $0.38 and non-GAAP gross margin of about 42%, all above what analysts had expected at the time.

Valuation

With negative trailing GAAP earnings, Intel has no meaningful P/E, while Nvidia trades at 30.20 times and AMD at 162.13 times trailing earnings. On a forward basis, Intel trades at about 63 times expected earnings, a premium that assumes the foundry turnaround succeeds. The consensus rating is Hold, with an average price target of about $114, close to the current price, including recent calls such as TD Cowen's Hold with a $115 target, Piper Sandler (NYSE:PIPR)'s Neutral initiation at $110 and Tigress Financial's Buy with a $145 target. The aggregated rating is Buy.

Bull case

● Data center demand is strong enough that Intel cannot meet all orders, with long-term contracts adding visibility.

● 18A production running ahead of target supports the manufacturing roadmap.

● Even as one of several partners, a role in Terafab could still bring meaningful foundry volume.

Bear case

● Losing exclusivity at Terafab weakens the clearest external validation of Intel Foundry.

● Share losses to AMD in PCs pressure the company's largest revenue segment.

● A roughly 63 times forward multiple leaves little margin for execution slips after a 200% rally.

Terafab clarity and the October 22 earnings test for Intel

Intel reports third-quarter results on October 22, where consensus estimates stand at $0.39 per share in non-GAAP earnings on revenue of about $16.41 billion. Investors will want clarity on Intel's role in Terafab, any new external foundry customers, the timing of 14A, and whether client revenue held up despite the share losses Susquehanna flagged. Until then, how Musk and TSMC describe the division of work at the Texas project is the open question for Intel's foundry story.