Intel Plans to Secure Additional Funding Through Discounted Share Placements Following $2 Billion SoftBank Investment, Shares Plummet Nearly 7%

TradingKey - Intel is reportedly in discussions with large investors to secure additional funding through a discounted share offering, according to sources familiar with the matter. On Wednesday, Intel's stock plummeted 6.99% to $23.54, a low not seen since August 13.

Previously, there were reports that the Trump administration was considering acquiring a 10% stake in Intel through a "subsidy-for-equity" scheme. Additionally, Japan's SoftBank Group announced on Monday a $2 billion investment in Intel at $23 per share, making it Intel's fifth-largest shareholder. These favorable developments drove Intel's shares up 7% on Tuesday, reaching a five-month high.

Discounted Placement Amid Intense Challenges

Analysts suggest that Intel's negotiations with other major investors, occurring just days after receiving $2 billion from SoftBank, indicate ongoing financial pressure. Furthermore, given the new financing involves a discounted share placement potentially at a lower valuation, market concerns about shareholder dilution have triggered a sell-off, causing Wednesday's sharp decline in stock price.

In fact, SoftBank's investment at $23 per share represents about a 3% discount from Intel's closing price of $23.66 on Monday. Intel is now looking to expand this financing method.

Some analysts note that discounted placements are uncommon in the semiconductor industry, as significant and stable funding is typically required for product development and manufacturing. Many large semiconductor firms usually opt for debt financing or strategic partnerships to secure ongoing capital. Frequent discounted placements might erode market confidence. Intel's decision to adopt this measure reflects the severe challenges it currently faces.

Due to years of strategic missteps, Intel has lagged behind competitors like TSMC, AMD, and Qualcomm in chip manufacturing and computer chip segments. In 2024, Intel reported an annual loss of $18.8 billion due to losses in its chip foundry business, marking its first substantial loss since 1986.

Long-Term Missteps, Ongoing Losses, Need for More Financial Support

These financing attempts are Intel's latest efforts to turn the tide following years of declining sales and shrinking market share. Sources indicate that Intel requires funds to develop products that truly meet customer needs. Patrick Moorhead, founder and chief analyst at Moor Insights and Strategy, believes that SoftBank’s $2 billion investment and potential U.S. government subsidies might fall short, as Intel needs upwards of $40 billion to develop next-generation 14A process chip technology.

Although Intel has secured investments and is expected to attract more funding, it remains uncertain whether these will reverse its fortunes.

Optimistic analysts see significant upside potential for Intel. Ben Reitzes from Melius Research suggests that the "Stargate" initiative led by SoftBank, aimed at investing in U.S. AI infrastructure, could benefit Intel’s chip manufacturing business. Additionally, with SoftBank holding a 90% stake in UK chip designer ARM, there might be opportunities to steer clients towards Intel’s chip foundry services.

Reitzes argues that the U.S. government's stake in Intel will help attract customers, as many companies aim to curry favor with the government by prioritizing Intel products.

Regarding concerns over the dilution of shares and earnings per share due to SoftBank’s investment and government acquisition, Reitzes describes it as accretive dilution, which will ultimately benefit shareholders in the long run. He raised Intel’s target price from $21 to $25.

However, some analysts maintain a pessimistic outlook, arguing that Intel's problem is not about money but finding customers for its manufacturing business. Continued U.S. government support for Intel might weaken its development capabilities, leading to a lack of innovation, inefficiency, and increased costs, which could be detrimental to Intel's long-term growth.