If the United States government were an asset manager, one could imagine it adopting quite a smug and self-satisfied tone when it penned its latest monthly update for investors. As CNBC reported yesterday, the government’s chunky 10% stake in Intel, acquired in late August, is comfortably in the black.
Shares of U.S. chipmaker Intel climbed 3% Thursday, putting the monthly gain over 50%. The surge pushed the stock past $37, hiking the value of the U.S. government’s 10% stake in Intel to roughly $16 billion.
The Trump administration negotiated an $8.9 billion investment in Intel common stock in August, purchasing 433.3 million shares at $20.47 per share.
The return looks even better when one remembers that the manner of the purchase was also rather unusual. As Intel’s press release at the time explained, not only did the government acquire the common stock at a discount, but the funding came mostly from previously awarded grants.
The government’s equity stake will be funded by the remaining $5.7 billion in grants previously awarded, but not yet paid, to Intel under the U.S. CHIPS and Science Act and $3.2 billion awarded to the company as part of the Secure Enclave program. Intel will continue to deliver on its Secure Enclave obligations and reaffirmed its commitment to delivering trusted and secure semiconductors to the U.S. Department of Defense. The $8.9 billion investment is in addition to the $2.2 billion in CHIPS grants Intel has received to date, making for a total investment of $11.1 billion.
The returns on Intel stock over the past month have been juiced not just by the government stake, but equally by the strategic tie-up recently announced with Nvidia, which not only pledged greater co-operation between the firms but came with a $5 billion investment in Intel.
The companies will focus on seamlessly connecting NVIDIA and Intel architectures using NVIDIA NVLink — integrating the strengths of NVIDIA’s AI and accelerated computing with Intel’s leading CPU technologies and x86 ecosystem to deliver cutting-edge solutions for customers.
For data centers, Intel will build NVIDIA-custom x86 CPUs that NVIDIA will integrate into its AI infrastructure platforms and offer to the market.
For personal computing, Intel will build and offer to the market x86 system-on-chips (SOCs) that integrate NVIDIA RTX GPU chiplets. These new x86 RTX SOCs will power a wide range of PCs that demand integration of world-class CPUs and GPUs.
NVIDIA will invest $5 billion in Intel’s common stock at a purchase price of $23.28 per share.
The investment is subject to customary closing conditions, including required regulatory approvals.
Notably, much of the analyst chatter – as reported, for example, by the Financial Times – following the Nvidia tie-up questioned the extent to which the investment was an effort by Nvidia to curry favor with the Trump administration.
Jensen Huang, Nvidia’s CEO, clearly felt the need to directly address this.
Huang accompanied Trump on the US president’s state visit to the UK this week. Huang and Tan have forged closer ties with the White House in recent months. Huang clarified that the Trump administration “had no involvement in this partnership at all”, although commerce secretary Howard Lutnick was “very excited [and] very supportive” of it.
But, the share price performance of the last month aside, it is hard to be especially optimistic about this latest, and mostly unexpected, twist in the chip war.
The Clark Center’s Finance Experts Panel, at least, remains deeply unconvinced. Asked this week whether ‘U.S. government ownership of equity stakes in U.S. companies is measurably detrimental to corporate performance’, 67% of respondents – weighted by confidence – either agreed or strongly agreed. Asked whether ‘U.S. government ownership of equity stakes in U.S. companies is substantially detrimental to good corporate governance’, more than 80% – again weighted by confidence – agreed or strongly agreed.
There was, of course, some nuance. Campbell R, Harvey of Duke Fuqua, for example, may have agreed that the specific moves were likely negative but still argued that ‘I think US government owning or partially owning corporations is a bad idea. In the specific situation of Intel, I believe it was the least worst option. In terms of national risk management, we cannot rely on TSMC and Samsung given their location’.
He went on to spell out some potential negative outcomes: ‘Bad outcomes: 1) giving government priority over shareholders; 2) other companies increase business with gov sponsored firm to detriment of value creation; 3) decisions made for political reasons. All leads to misallocation of capital’. Some may already detect some of that second risk in the Nvidia-Intel deal.
For some respondents, much depended on the exact circumstances of a government stake. Matteo Maggiori of Stanford GSB expressed uncertainty, noting that ‘I think there is unlikely to be a universal answer. It depends on the case and the rationale. E.g. a bailout of a bank with liquidity problems different than a shakedown stake’.
And several experts noted that much depends on the nature of the government stake and holdings. As Jonathan Parker of MIT Sloan put it, ‘As currently (recently) done, the U.S. holding non-voting equity (or warrants or preferred stock ala TARP in 2008-9) in small amounts, does not measurably undermine governance. Ex post, non-voting share are like dividend taxes. The possibility of govt meddling is detrimental’. The Norwegian sovereign wealth fund buying exposure via an index fund, for example, is rather different to a government taking an active stake and attempting to create a national champion.
The big questions now are, having acquired a stake in Intel, will the government treat it like any other firm, or will it receive different treatment? Will other firms be encouraged to support it? Will it be favoured when it comes to government procurement decisions? And, will its management be free from political interference?
At present, the experts do not seem to be very optimistic.
