Intel (INTC) is seeing renewed momentum in its foundry business, with the Terafab partnership marking a potential inflection point and supporting a bullish view. The stock has surged nearly 50% in April, driven in part by its involvement alongside Elon Musk’s Tesla (TSLA), SpaceX, and xAI in the large-scale chip manufacturing initiative. I am bullish on the American semiconductor giant as I believe its foundry business is now at the cusp of a turnaround, which eliminates a key argument highlighted by bears.
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Terafab Partnership Validates 18A Node’s Foundry Use Case
One of the main reasons behind my bullish stance on Intel is that its involvement in the Terafab project validates the 18A node it developed, especially for the foundry use case. 18A is the most advanced node developed by Intel for now and is manufactured domestically. When deciding to mass-manufacture 18A at its Arizona and Oregon plants, Intel cited ambitious plans for its foundry division as the primary goal. The pilot chip production facility under this initiative is expected to be housed within Tesla’s GigaTexas site in Austin.
Until the Terafab announcement, Intel had not been able to land any major clients for the foundry segment to challenge the established giants in this space, such as Taiwan Semiconductor Manufacturing Company (TSMC) (TSM). The Terafab partnership meaningfully changes the narrative for 18A.
Historically, Elon Musk’s companies have relied on chips developed by TSMC and Nvidia Corporation (NVDA). The decision to partner with Intel to use its 18A node for the AI5 autonomous driving technology, Optimus robot, and for xAI — in and of itself — is a strong indicator that Intel is finally winning the trust of large-scale customers for advanced use cases after many years of trailing its competitors. Elon Musk’s approval of Intel also strengthens the case for Intel’s PowerVia technology.
The Foundry Business Is Changing for the Better
My bullish stance on Intel is strengthened by strategic changes to the foundry business introduced by CEO Lip-Bu Tan. Before this makeover, the foundry segment had come under significant criticism from investors due to high levels of resource underutilization and elevated capital expenditures. As part of his business reorganization decisions, CEO Tan scrapped facility buildout projects in Germany and Poland to slash capex.
In addition, he confirmed that the infrastructure spending required to mass-produce the upcoming 14A node will not be approved until there is a strong indication of demand from large-scale customers. This strategy directly contrasts with Intel’s previous strategy of building out infrastructure and focusing on customer acquisition later.
Another strategic change introduced by CEO Tan is the focus on targeting customers’ inference and agentic artificial intelligence (AI) workloads. Previously, Intel’s strategy was focused on the hardware side of the business. On recent earnings calls, the CEO has confirmed that Intel will focus on designing custom silicon and systems, as he believes AI infrastructure should prioritize balanced systems.
The Terafab project itself highlights that Intel has made progress with these efforts, given that autonomous driving chips and orbital computing chips require custom silicon buildouts.
Intel’s Focus on Yield Improvement and Innovation Is Impressive
In addition to the strategic changes discussed above, Intel seems focused on improving 18A yields as it enters mass production. This technology development strategy is led by Naga Chandrasekaran. The Terafab project gives its team a massive throughput opportunity to work on improving the yield learning curve, as high-scale production is very likely to create friction in the early stages, enabling permanent fixes that would then improve the chances of Intel winning other large-scale customers in the future.
As part of this strategy, Intel is now focused on cost improvements at its manufacturing plants as well. In the past, Intel focused only on accelerating its semiconductor manufacturing throughput, not on maximizing efficiency. This strategic shift should enable the company to achieve higher yields in the future, potentially leading to a valuation re-rating.
While keeping focused on yield improvement, Intel has not lost sight of innovation. This is a key differentiator between today’s Intel and the Intel that struggled to keep up with competitors in the past. One of the biggest innovations expected from Intel is the commercial launch of the 14A node. This node represents a meaningful improvement across power and performance compared to 18A.
According to estimates, turbo cells used in 14A are expected to boost the performance-per-watt by at least 15% compared to 18A. The interesting aspect is that customers can choose to prioritize power savings over performance. 14A is expected to deliver at least 25% power savings if customers opt for lower power consumption instead of improved performance.
Is Intel a Buy, According to Wall Street Analysts?
Based on 34 Wall Street analysts’ ratings, the average Intel price target is $52.52, implying a downside of 19.43% from the current market price.
Although analyst estimates suggest Intel is overvalued today, I am taking a contrarian stance, as I believe the market will reward the company handsomely for working to restore its past glory. So far, under CEO Lip-Bu Tan, Intel has made steady progress by delivering on both innovation and cost efficiency. When Intel wins more contracts from large-scale customers, I expect a wave of positive analyst revisions to boost the company’s average price target.
Takeaway
Intel’s foundry business secured its first anchor customer win in Terafab, an initiative launched by Elon Musk’s xAI, SpaceX, and Tesla to secure the semiconductor supply chain. Even with a strong market performance over the past 12 months, I still find Intel attractive, as I believe we are still in the early stages of the company’s turnaround.