Musk Confirms Terafab Talks, Sending Intel Shares Lower and TSMC to Record Highs

Key points

• Elon Musk confirmed on X that talks are ongoing for TSMC to join Terafab, describing them as 'just discussions' but noting something may come of it.
• Intel shares fell about 2% on Monday following the announcement, while TSMC shares rose 3% and hit an all-time high.
• Terafab is a joint venture between Tesla and SpaceX in Grimes County, Texas, with $16.8 billion committed to the first phase and up to $119 billion across all phases.
• Intel joined Terafab in April, and its 14A process was the only named technology for the facility, making it a key showcase for Intel's foundry business.
• Intel's foundry business generated only $293 million in revenue from outside customers in the second quarter, highlighting the importance of securing large external clients.

Background

Intel has been on a significant upward trajectory, with its stock rising over 200% in the past year. CEO Lip-Bu Tan has been credited with transforming the company from a 'has-been' into a 'force to be reckoned with.' The company's foundry business has been a key focus, with Intel seeking to compete with TSMC by securing large external customers. The Terafab venture was seen as a major opportunity for Intel to demonstrate its capabilities and secure a marquee US customer.

How outlets are covering it

Barron's characterized the news as a 'setback' for Intel, suggesting that the potential involvement of TSMC could diminish Intel's exclusive role in the Terafab project. TIKR, on the other hand, emphasized the financial implications, noting that Intel's stock is trading at about 71 times forward earnings, which assumes significant foundry wins. TIKR also highlighted that Intel's foundry business generated only $293 million in revenue from outside customers in the second quarter, underscoring the importance of securing large external clients. Yahoo Finance reported that TSMC stock hit an all-time high following the confirmation of the talks, while Intel shares fell.

Why it matters

The potential involvement of TSMC in Terafab could significantly impact Intel's foundry business, which has been a key focus for the company. Intel's stock is trading at a premium, and any setback to its foundry strategy could lead to a reassessment of its valuation. The development also highlights the competitive dynamics in the semiconductor industry, with TSMC and Intel vying for dominance in advanced chip manufacturing.

What to watch

Investors will be watching for any formal deal between TSMC and Terafab, as well as Intel's 14A design kit, which is due in October. The outcome of these discussions could have significant implications for Intel's foundry business and its stock price. Additionally, the development could influence the broader semiconductor industry, as TSMC and Intel continue to compete for dominance in advanced chip manufacturing.