The War Of The Worlds
aka. Intel Q2 FY12/23 Earnings Review
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Intel = Boeing = Hopefully Not Bear Stearns
Too big to fail. You've heard that one before, right? Well, right now there are two American champions working with an unwritten Federal balance sheet guarantee, and those names are Boeing (which is coming off of life support, see our note here) and Intel (which is still in ICU but is showing signs of consciousness).
In the USA vs USSR cold war the weapons were money and weaponry. Specifically, which economic system could generate most money in order to spend it on developing and manufacturing enough weaponry that could subdue the other side. Initially the USSR nosed ahead, thanks to a singularly brilliant rocketry designer, a most un-communist nose for elan amongst the Politburo (big ole silver ball flying over the USA, beeping, brilliant, real War Of The Worlds stuff), and the initial advantages of a command economy, being that you can command it to produce less food and more missiles. Oh, except the food destined for your table, which was still produced with gusto. As the 1960s progressed, the US regained lost ground and eventually attained an unassailable lead, signalled most clearly with the Saturn V. Beeping silver ball? We'll raise you a monster rocket and a moon landing. By the time the 1990s came around, the Soviet command economy collapsed under its own contradictions, and the rest is history.
This time around the US faces a more skilled and richer opponent, being China. And the weapons of choice are money and semiconductors. There's still the old-fashioned who's-got-the-biggest-rocket thing going on - China has landed successfully on the Dark Side Of The Moon (really!), prompting another space race of sorts. How else can you explain the Senate Launch System aka. the Artemis rocket? This is a sideshow however, mere bread and circuses. The real game is in 3nm and below process node manufacturing. Today's leader is Taiwan Semiconductor TSM 0.00%↑ which Taiwan thinks is a Taiwanese business, but China thinks is or is going to be a Chinese business.
Now much like the Sputnik I moment, the US is in the middle of an a-ha, oops, quick, spend money project. Having leaked IPR of all kinds, including process manufacturing expertise, to TSM and for that matter SMSC and others for years, the US has found that it needs to reshore all that and quick smart too. Bunch of warships showing off in front of the world's leading semiconductor manufacturer on an island a long way away will do that to you. Cue the CHIPS Act, and therefore the next act for Intel INTC 0.00%↑ .
Intel has been committing slow suicide for a good 15 years or so now. Surrendered leadership in the mobile CPU market to ARM, missed the move to GPU, making Jensen Huang the owner of the finest collection of leather jackets the world has ever seen. And then finally tripped over its own laces trying to make 10nm CPUs, then 7nm CPUs, then ... oh you get the idea.
So, the old management team have been shown the door, Pat Gelsinger now owns the problem, a balance sheet that is spewing money out of every open and closed door isn't a problem for its lenders, and the Federal government is sending money daily so that Intel can build new fabrication plant all across the parts of the US that a North Korean missile cannot reach. And just like in the 1960s, the US means to win.
We think it will win. Because capitalism.
So we think that just as owning Boeing, to beat out Airbus of Europe and Comac of China - oh also to keep making that launch system, refueling tankers, and the like - is a good idea, we think owning Intel as an instrument of US vs China is a good idea.
For our Premium and Pro members we now go on to look at Intel’s Q2 print, its valuation, and where we think the stock may be headed.
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