Intel stock jumps 4% as BofA backs foundry strategy despite dilution

Intel stock INTC surged 4% on Wednesday after its recent $20 billion (approx. R 342,4 billion) stock offering.

While Bank of America said the stock offering may dilute earnings in the near term, the analyst sees the move as growing confidence in the chipmarker's long term foundry strategy.

BofA estimates the additional shares issued through the equity raise could dilute Intel's earnings per share (EPS) by roughly 4% to 5%.

Despite the short-term impact, the brokerage maintained its Buy rating on the stock while lowering its price target to $145 from $160.

BofA sees long-term foundry gains outweighing dilution

BofA described the capital raise as a "good leading indicator" of management's increasing conviction in Intel Foundry.

While acknowledging that issuing new shares would pressure near-term EPS, the firm said expanding the foundry business and attracting additional customers could ultimately offset the dilution through stronger revenue growth and operational efficiencies.

The brokerage lowered its price target primarily to reflect the expected EPS dilution from the offering and the recent rerating across AI-compute companies, which has pushed valuation multiples higher throughout the semiconductor sector.

Intel announced earlier this week that it had upsized its planned stock offering from $15 billion (approx. R 256,8 billion) to $20 billion (approx. R 342,4 billion), pricing the shares at $95 each.

The company expects net proceeds of approximately $19,7 billion (approx. R 337,3 billion), while underwriters also have a 30-day option to purchase an additional $3 billion (approx. R 51,4 billion) worth of shares.

Intel highlights investor demand and AI opportunity

Intel CEO Lip-Bu Tan said investor appetite exceeded expectations, noting in a post on X that the offering was "oversubscribed by more than five times" the company's initial $15 billion (approx. R 256,8 billion) target.

The company said customers continue to signal a "strong and sustainable demand environment" driven by unprecedented investment in AI computing.

Intel identified physical AI, purpose-built silicon, advanced packaging and external wafers as key areas of growth, adding that the proceeds would support these investments while preserving a strong balance sheet and maintaining its investment-grade credit rating.

The US government, which held a 9.9% stake before the offering, reportedly did not participate in the transaction.

According to earlier reports, Commerce Secretary Howard Lutnick approved the offering plan after discussions with Intel's chief executive.

Analysts say stronger balance sheet comes with higher expectations

Seeking Alpha said the enlarged equity raise strengthens Intel's financial position and provides additional capital to accelerate its manufacturing expansion, describing the timing as favorable despite the share dilution.

The report noted that Intel has steadily increased its share count over the past two years to finance its turnaround, with the latest offering expected to lift the pro forma share count to roughly 5.35 billion shares.

Pro forma cash holdings are projected to increase to about $53 billion (approx. R 907,3 billion), largely offsetting the company's debt burden.

Intel continues to invest heavily in its foundry business, including expanding manufacturing capacity and repurchasing a 49% stake in its Ireland fabrication plant.

The company also reported improving financial performance in the second quarter, with revenue rising to $16,1 billion (approx. R 275,6 billion), supported by strong growth in its data center and foundry operations.

However, Seeking Alpha cautioned that the company's recovery is still in its early stages.

It noted that while profitability has improved and operating leverage has strengthened following workforce reductions, Intel's sales outlook remains modest and the stock now trades at significantly higher valuation multiples than in previous years.

The report concluded that investors have become more optimistic about Intel's turnaround, but execution remains critical.

While the capital raise reinforces confidence in the company's long-term strategy, Intel still faces the challenge of delivering sustained growth and improving margins to justify its higher valuation.