Intel (NASDAQ:INTC) shares had been on a burner of a week, following news that the Silicon Valley pioneer could be the object of an acquisition by a major industry player such as TSMC or Broadcom. However, the stock price sank yesterday as the market began to digest the realities that any takeover bid would face a litany of technical and regulatory challenges.
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The merger and acquisition talks arrived after a rough stretch for Intel, which has lost both market share and opportunities to rivals. A recent leadership change at the top has introduced more uncertainty for the company’s prospects.
Still, the Intel brand carries a fair amount of cache, and its position as a strategically important American manufacturer of semiconductors could mean that the U.S. government will have an interest in making sure it stays relevant.
Though recognizing Intel’s large upside, investor Kenio Fontes urges a cautious approach.
“Potential M&A deals could unlock value, but the outcomes are uncertain and depend on deal structure, regulatory risks, and execution,” notes the investor.
The details of any potential deal matter, emphasizes Fontes, and there are a number of scenarios where a merger leads to shareholder dilution, unfavorable prices, and/or a diminished company. The U.S. government will also need to approve any agreement, which could be further complicated by the presence of a foreign buyer.
All that being said, there is definitely a bull case to be made for Intel, Fontes notes, especially if the company is able to successfully deliver on cutting-edge technology such as the sub-2nm chips.
“A good roadmap with evolutions and new generations could be enough to close the gap, and with the company investing heavily in R&D, they could eventually find a solution,” continues the investor.
It goes without saying, Fontes adds, that any successes will depend on company execution. Herein lies the rub, as the investor is not fully confident in the ability of Intel’s management to successfully lead the charge.
That’s one of the reasons the investor is not overly bullish on Intel. The second: Fontes believes that all the uncertainty creates more compelling options for investors. Fontes explains that companies such as Nvidia and TSMC have better technology, management, fundamentals, and partnerships.
Though Intel could be on the cusp of getting its house in order and unleashing major value, Fontes simply cannot get beyond the unknowns.
“The uncertainty is so great that it’s almost a bet, whether you’re betting that some M&A will unlock value, that the government will continue to support the company until they catch up with their peers, and at the end, a bet that Intel will return to better execution,” concludes the investor, who is giving Intel a Hold (i.e. Neutral) rating. (To watch Fontes’ track record, click here)
Wall Street is also content to wait-and-see. With 1 Buy, 27 Hold, and 5 Sell ratings, INTC is a consensus Hold. Its 12-month average price target of $22.67 would yield losses in the low double digits. (See INTC stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
